low inflation the behavior of financial markets and institutions this paper provides a broad overview of the potential impact of low inflation deflation on u s financial markets and institutions it is argued that the contemporary experience of japan and the historical experience of the united states in the 1920s and 1930s offer only limited insights into the potential impact of low inflation deflation on today s u s financial system a number of potential implications are discussed including a decline in secondary market trading and a trend towards reintermediation in addition low inflation deflation is likely to have a material effect on bank duration and convexity exposures

price inertia and market structure empirical evidence from austrian manufacturing 1993 price inertia and market structure empirical evidence from austrian manufacturing applied economics vol 25 no 9 pp 1175 1186

nonmonetary effects of the financial crisis in propagation of the great depression this paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period our approach is complementary to that of friedman and schwartz who emphasized the monetary impact of the bank failures we focus on non monetary primarily credit related aspects of the financial sector output link and consider the problems of debtors as well as those of the banking system we argue that the financial disruptions of 1930 33 reduced the efficiency of the credit allocation process and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand evidence suggests that effects of this type can help explain the unusual length and depth of the great depression this abstract was borrowed from another version of this item

agglomeration economies and industrial decentralization the wage productivity trade offs abstract this paper examines the industrial location trade offs between the productivity advantages of the metropolitan center and the lower land and the labor costs in outlying regions within the state of sao paulo brazil the results indicate that while plant productivity is enhanced by the considerable agglomeration economies existing within metropolitan sao paulo firms must pay for these benefits in high wages and land costs offsetting labor cost savings can be achieved by locating in outlying regions the evidence presented in this paper suggests that market forces may lead eventually to a spontaneous decentralization of industry

political economic markets perts and pests in food and agriculture j i lyniversity of california berkeley jjept of agricultural and resource economic l working paper al cljdare i lorking paper 0 231 politic eco lic l rxets a d pests i j food l ti achiculture by per ts cordon c rausser ja nlnl tt junot tlon a riii ent st ticn giannini fou 1cl itiol1of ar ricultllrnj econo ll i cs july 11 w

agricultural price instability a survey of competing explanations and remedies there are two explanations for agricultural price dynamics one follows cobweb logic and models fluctuations driven by expectation errors but emphasises that these expectations create complex dynamics and possibly chaos the other stems from the rational expectations tradition of dynamics driven by real shocks the empirical evidence tends to support the latter but is not conclusive the rational expectations model generates an optimal dynamic path from which no improvement can be expected from public intervention however if we take account of all the potential market failures in agricultural markets and especially in developing countries this conclusion might require some qualifications although an appropriate policy design for stability has still to be achieved this paper surveys the positive and normative literature on agricultural prices highlighting empirical evidence and identifying remaining unresolved issues

the liquidity trap and u s interest rates in the 1930s most current literature assumes that a central bank loses the ability to influence interest rates through variations in reserve supply as soon as overnight rates have been driven to zero i argue that reserve supply can be directly related to longer term rates when overnight rates are zero because banks reserve demand is then defined by the role of cash as an asset free of interest rate risk i present evidence that reserve supply affected longerterm interest rates in the u s from 1934 through 1939 while overnight rates were at the zero floor even when the changes in reserve supply reflected factors unlikely to have affected expectations of future overnight rates

was the deflation during the great depression anticipated evidence from the commodity futures market futures prices were well above spot prices for most commodities during most of the great depression evidently the spectacular declines in agricultural prices caught many people by surprise based on the historical correlations between commodity prices and consumer prices commodity markets anticipated stable consumer prices during the first year of the great depression the dramatic drop in nominal treasury bill yields thus should be read as a drop in ex ante real rates later in the great depression markets anticipated deflation but not as severe as actually occurred copyright 1992 by american economic association

the demand for borrowed reserves a switching regression model a microeconomic model of bank demand for borrowed reserves from the federal reserve is developed based upon constrained cost minimization the derived demand function was found to correspond to behavior appropriate to the unknown switchpoint switching regression problem when estimated parameters generally conformed to theoretical expectations the model was also tested for existence of switching regression behavior against a model similar to goldfeld and kane 12 significance exceeded 99 in all cases with the advent of reserve intermediate targeting it appears especially necessary to reinvestigate the behavior determining this important source of reserves with the advent of reserve intermediate targeting as of october 6 1979 it appears especially necessary to reinvestigate the behavior determining one source of these reserves borrowings from the discount window although the behavior of borrowed reserves has concerned researchers since the 1920s interest in the subject generally waned after 1970 the reason has much to do with the studies of polakoff 21 and goldfeld and kane 12 polakoff develops a structural model for discount window borrowing based upon the individual bank minimizing its costs among alternative borrowing sources adapting the seminal work of turner 29 goldfeld and kane extend and estimate polakoff s original model because of their well developed microeconomic theory seemingly accurate empirical adjustments and proxy variables and excellent all around empirical results goldfeld and kane s study is widely hailed as a leading study in the field of borrowed reserve demand evidence exists through studies such as keir 18 that the federal reserve continues to use this same basic model in this study a borrowed reserve demand function is derived using a constrained minimum cost setup included in the cost of discount window borrowing is an implicit cost function reflecting bank reluctance to borrow from the discount window caused by federal reserve surveillance the derived demand function found in section i conforms to behavior appropriate to a switching regression model in this case switching occurs dependent upon the size of the interest rate spread relative to an unknown switchpoint after making minor adjustments in section ii the model is estimated employing monthly data from 1955 78 these results and the tests for the existence of

were price changes during the great depression anticipated abstract this paper reassesses whether the large swings in prices during the 1930 s were anticipated we argue that uncertainty about monetary fiscal and exchange rate policies induced systematic differences between the rate of price change expected by economic agents at the time and the time series forecasts of inflation our analysis of nominal interest rates and ex post inflation strongly supports this view in fact our results suggest that the deflation of the early depression years and the inflation that followed were both largely unanticipated

competition over high income workers job growth and access to labour in atlanta access to a large labour pool labour pooling leads to local economic concentrations through agglomeration economies however these concentrations may be self limiting by reducing labour availability through competition over high skill workers this paper examines whether labour pooling and labour availability of workers with different incomes account for local job growth in the atlanta metropolitan area between 2000 and 2006 workers income is employed to account for the human capital of workers including education and skills it is found that the availability of high income workers is the only positive significant factor for job growth and the spatial size of the effect is larger than the traffic analysis zone neighbourhood scale in contrast no labour pooling indicators show a positive association with job growth the finding casts doubt on labour pooling effects at the intraregional level and suggests avenues for further research on local area agglomeration economies

from drafts to checks the evolution of correspondent banking networks and the formation of the modern u s payments system 1850 1914 checks remained local payments instruments throughout virtually the entire nineteenth century their significant use in interregional transactions dates only to the 1890s we explain their lagged spatial diffusion by the evolution of centralized payments institutions to coordinate transactions among myriad banks not real technological changes to annihilate distance the pivotal institutions were large correspondent banks especially in new york after the civil war new york funds constituted a national settlement medium and the concentration of bankers balances in new york yielded liquidity and other externalities smoothing the flow of check payments

labor heterogeneity wage bargaining and agglomeration economies abstract the modern economy is characterized by increasing returns to scale diverse production technology and specialized labor requirements with heterogeneous production technology increasing returns to scale and specific labor requirements we show that average productivity increases with the size of the labor market the larger the size of the market the better the matches between workers and firms resulting in lower on the job training costs through the wage bargaining between firms and workers the savings in training costs are transmitted into higher wages

financial factors in the great depression eginning with irving fisher 1933 and john maynard keynes 1931 b 1963 macroeconomists have argued that financial markets were important sources and propagators of decline during the great depression turning points during the depression often coincided with or were preceded by dramatic events in financial markets stock market collapse waves of bankruptcy and bank failure and contractions in the money stock but the mechanism through which financial factors contributed to the depression has been a source of controversy as has been the relative importance of financial factors in explaining the origins and persistence of the depression this essay reviews the literature on the role of financial factors in the depression and draws some lessons that have more general relevance for the study of the depression and for macroeconomics i argue that much of the recent progress that has been made in understanding some of the most important and puzzling aspects of financial real links in the depression followed a paradigm shift in economics a central neglected theoretical piece of the story for financial factors was the allocative effects of imperfections in capital markets which can imply links between disruptions in financial markets and subsequent economic activity also the increasing emphasis on learning and path dependence in economics has helped to explain why financial shocks during the 1930s were so severe and why policy makers failed to prevent the depression

great expectations and the end of the depression what ended the great depression in the united states this paper suggests that the recovery was driven by a shift in expectations this shift was triggered by president franklin delano roosevelt s fdr policy actions on the monetary policy side roosevelt abolished the gold standard and announced an explicit policy objective of inflating the price level to pre depression levels on the fiscal policy side roosevelt expanded real and deficit spending which helped make his policy objective credible the key to the recovery was the successful management of expecta tions about future policy roosevelt s rise to power is modeled as a policy regime change as in thomas sargent 1983 and peter temin and barry wigmore 1990 this paper formalizes temin and wigmore s argu ment in a repeated game setting using a dynamic stochastic general equilibrium dsge model and argues that the regime change can account for the recovery in the model a regime change means the elimination of certain policy dogmas that constrain the actions of the government the regime change generates an endogenous shift in expectations due to a coordination of mon etary and fiscal policy this coordination ended the great depression by engineering a shift in expectations from contractionary i e the private sector expected future economic contrac tion and deflation to expansionary i e the public expected future economic expansion and inflation the expectation of higher future inflation lowered real interest rates thus stimulating demand while the expectation of higher future income stimulated demand by raising permanent income

sources of panics evidence from the weekly data abstract we use weekly data 1867 1933 to investigate the sources of banking and financial panics we find that while a panic s exact starting date is unpredictable one can identify environments conducive to panics a lack of liquidity in financial markets seems to be a key source results also reveal the effectiveness of the aldrich vreeland act inelastizing the money supply and shortening the panic of 1914 and suggest that the panic of 1933 may have been caused by a speculative attack on the gold backed us dollar via the banks as opposed to a run on the banks directly

intra metropolitan productivity variations of selected manufacturing and business service sectors what can we learn from los angeles this paper explores an empirical issue the extent to which access to various labour skills and other economic activity in los angeles can explain observed intra urban variations in productivity of selected manufacturing and business service sectors in addressing this issue an empirical model is developed based on traditional location theory and productivity methodologies the empirical results indicate that the influence of skilled labour access on firm productivity is stronger than the influence of access to other firms in the metropolitan area thus employment decentralisation is the rational response of firms to the residential choices of a skilled labour force the findings raise questions about the mobility of labour within metropolitan areas and the impact of policies that would improve the mobility of less skilled labour between central cities and the suburban employment centres

inflation forecast targeting an alternative approach to estimating the inflation output variability tradeoff we suggest a new way of computing the inflation output variability tradeoff under inflation forecast targeting our approach is based on dynamic stochastic simulations of the average inflation rate over a two year horizon using the moving average representation of a vector autoregressive var model using real time data over two samples we estimate the inflation output variability tradeoff for the united states and show that it has shifted favorably over time we analyze the policy interventions required to achieve target inflation in each sample and compare these interventions over time

are negative option prices possible the callable u s treasury bond puzzle market prices for callable treasury bonds often imply negative values for the implicit call option the author considers a variety of possible explanations for these negative values including the treasury s track record in calling bonds optimally tax related effects tax timing options and bond liquidity none of these factors accounts for the negative values although the costs of short selling may explain why these apparent arbitrage opportunities persist over time why these implicit call values become negative in the first place remains a puzzle copyright 1992 by university of chicago press

flexible exchange rates and commodity price changes the case of japan although agricultural commodities are often assumed to have flexible prices little has been done to estimate exchange rate pass through perfect commodity arbitrage opportunities imply complete pass through imperfect opportunities could lead to incomplete pass through analysis of commodity price and exchange rate adjustments for five commodities exported to japan by the united states reveals that during the 1970s commodity prices were generally flexible during the 1980s when the dollar was rising price stickiness on the part of exporters importers contributed to inflexible prices and asymmetric exchange rate response specifically an exchange rate increase was passed through for some commodities but not a decline

currency elasticity and banking panics theory and evidence existing models of banking panics contain no role for monetary factors and fail to explain why some banking systems experienced panics while others did not a monetary model is constructed where seasonal variations in the demand for liquidity and credit play a critical role in generating banking panics these panics occur when there are restrictions on the issue of currency in private banks but they do not occur if banks are unrestricted empirical evidence from canada and the united states for the period 1880 1910 is largely consistent with the predictions of the model

arbitrage with fixed costs and interest rate models in this paper we study securities market models with fixed costs we characterize the absence of arbitrage opportunities and we provide fair pricing rules we then apply these results to extend some popular interest rate and option pricing models which present arbitrage opportunities in the absence of fixed costs in particular we prove that the quite striking result obtained by dybvig ingersoll and ross 1996 which asserts that under the assumption of absence of arbitrage long zero coupon rates can never fall is no longer true in models with fixed costs even arbitrarily small ones for instance models where the long term rate follows a diffusion process are arbitrage free in the presence of fixed costs including arbitrarily small ones we also rationalize models with partially absorbing or reflecting barriers on the price processes in particular we propose a version of the cox ingersoll and ross 1985 model which as in longstaff 1992 produces yield curves with realistic humps but does not assume an absorbing barrier for the short term rate this is made possible by the presence of even arbitrarily small fixed costs

the rent gradient for manufacturing abstract rent gradients for manufacturing are estimated using actual rent and value figures for cincinnati distance to the city center is found to be of no importance in explaining rent or value variations

member bank borrowing and the fed s contractionary monetary policy during the great depression this paper examines the causes of federal reserve policy errors during the great depression it finds compelling evidence that the fed developed a flawed strategy during the 1920s and continued to use that strategy during the depression the fed s strategy relied on the behavior of member bank borrowing and interest rates as policy indicators a detailed empirical examination of borrowed reserve demand reveals the errors in the fed s strategy and helps to explain why the fed did not undertake vigorous countercyclical policy during the depression copyright 1990 by ohio state university press

the bond price support program as a change in policy regimes evidence from the term structure of interest rates recently mankiw miron and weil 1987 argued that a change in policy regimes generally affects the public s expectations of future interest rates to illustrate this influence they compare the operation of the gold standard with the post gold standard regime in the united states they find that nominal short term interest rates were mean reverting before 1914 but became nonstationary after the creation of the federal reserve system we extend mankiw miron and weil s analysis by noting that the period from 1914 to the present cannot be characterized as one uninterrupted episode of policy discretion the united states temporarily abandoned discretion for a rule in the 1940s the fed and treasury agreed in april 1942 that the fed would adjust federal reserve credit in a manner that would produce relatively low market rates on longterm securities in particular the fed committed itself to support twenty year government bond prices at a level consistent with a 2 5 percent interest rate ceiling we investigate the possibility that the bond price support program of the 1940s conditioned the behavior of short term interest rates in a predictable way according to the expectation theory of the term structure a binding long term interest rate ceiling implies that an increase in the current short rate must cause the sum of the innovation and the change in future expected rates to be zero otherwise the long rate rises above the ceiling and the public perceives a violation of the bond rate commitment placing a binding ceiling on long term interest rates tends to make short term interest rates mean reverting

overcoming the zero bound on interest rate policy the paper proposes three options for overcoming the zero bound on interest rate policy a carry tax on money open market operations in long bonds and monetary transfers a variable carry tax on electronic bank reserves could enable a central bank to target negative nominal interest rates a carry tax could be imposed on currency to create more leeway to make interest rates negative quantitative policy monetary transfers and open market purchases of long bonds could stimulate the economy by creating liquidity broadly defined a central bank needs more fiscal support than usual from the treasury to pursue quantitative policy at the interest rate floor

the worldwide change in the behavior of interest rates and prices in 1914 abstract this paper evaluates the role of the destruction of the gold standard and the founding of the federal reserve both of which occured in 1914 in contributing to observed changes in the behavior of interest rates and prices after 1914 the paper presents a model of policy coordination in which the introduction of the fed stabilizes interest rates even it the gold standard remains intact and it offers empirical evidence that the dismantling of the gold standard did not play a crucial role in precipitating the changes in interest rate behavior

the federal reserve and panic prevention the roles of financial regulation and lender of last resort this paper surveys the role of the federal reserve within the financial regulatory system with particular attention to the interaction of the fed s role as both a supervisor and a lender of last resort the institutional design of the federal reserve system was aimed at preventing banking panics primarily due to the permanent presence of the discount window this new system was successful at preventing a panic in the early 1920s after which the fed began to discourage the use of the discount window and intentionally create stigma for window borrowing policies that contributed to the panics of the great depression the legislation of the new deal era centralized fed power in the board of governors and over the next 75 years the fed expanded its role as a supervisor of the largest banks nevertheless prior to the recent crisis the fed had large gaps in its authority as a supervisor and as lender of last resort with the latter role weakened further by stigma the fed was unable to prevent the recent crisis during which its lender of last resort function expanded significantly as the fed begins its second century there are still great challenges to fulfilling its original intention of panic prevention

an examination of country member bank cash balances of the 1930s a test of alternative explanations around march 1933 commercial banks began accumulating unprecedented amounts of cash uncertainty over deposits and loans low interest rates relative to brokerage fees and costly de novo capital have been used to explain this behavior this paper employs aggregate call date data for country member banks in the 12 federal reserve districts to formally investigate the role of these factors in the accumulation the results indicate a minimal if any role for these factors the findings suggest that it was the unintended consequence of unprecedented deposit growth in the face of large scale related adjustment costs

benchmarking the expectations hypothesis of the interest rate term structure an analysis of cointegration vectors i test cointegration restrictions that are consistent with the expectations hypothesis of the term structure by employing the full information maximum likelihood methods developed by johansen yield curves appear to be the result of cointegration among interest rates the cointegration vectors that best describe the long term impact of interest rate levels on interest rate changes can often be written as linear combinations of interest rate spreads there is however difficulty in keeping short term yields in such a restricted cointegrated system with other interest rates short term speculative returns from long term bonds do not conform to the expectations hypothesis

the implicit return on bankers balances the u s banking system operates in a regulatory framework that has grown out of two sets of reforms the creation of the federal reserve system in 1914 and the new deal banking legislation of the 1930s these reforms were motivated in part by a desire to diffuse liquidity away from its concentration in money center banks the chief mechanism by which liquid funds were transferred to city banks in the nineteenth and early twentieth centuries was bankers balances the demand deposits held by country banks with city banks city banks paid interest on bankers balances and provided rural banks with correspondent services the funds urban banks acquired through bankers balances were often placed in call loans on stock collateral legislators financial writers and bank regulators objected to this link between country bank funds and the stock market charging that the payment of interest on bankers balances diverted resources from productive uses in rural areas to speculation in securities markets and contributed to the financial panics of 1857 1873 1884 1893 1907 and 1929 the extent to which nominal interest payments induced country bank funds to travel to the cities has never been fully resolved though the issue was debated at length before 1933 and has been studied by banking historians in years since the difficulty has been in interpreting the extraordinary stability of the rate of interest

productive efficiency and region based on estimates of cobb douglas production function this study has found that significant spatial variation in labor productivity exists even after adjusting for capital intensity the adjustment for capital intensity reduces the regional variation by 38 to 69 and the ciy size variation by 75 the results reveal a 6 to 8 producitivity advantage for non south census regions relative to the south and productivity increases of 1 5 with each doubling of smsa population nevertheless lower wages in the south and in smaller cities make it and them an attractive location for manufacturing firms the study has also found that the sveikauskas conjecture that labor productivity can be substituted for hicks neutral productivity in an analysis of the latter is false if metropolitan data are used by so doing capital intensity effects and total factor productivity effects are confounded to study spatial variations in total factor productivity productive efficiency it is necessary to control for spatial variations in captial intensity the results of this study indicate that absent better data on capital the approach offered by aberg yields satisfactory results 14 references 2 tables

the growing reluctance to borrow at the discount window an empirical investigation federal reserve regulation a imposes formal guidelines on borrowing from the discount window and ensures that the facility is used for appropriate purposes in a way this regulation imposes a nonprice mechanism that compels depository institutions to be more prudent in exercising their borrowing privileges in the 1980s however banks became increasingly more reluctant to borrow adjustment credit from the discount window this behavior is puzzling because discount window guidelines have not changed this paper investigates the reasons behind the weakened demand for borrowed reserves our empirical findings suggest that the growing reluctance to borrow stems from the deteriorating financial position of banks during this period in particular banks avoided the discount window because they feared that market participants might have interpreted their visits as a signal of serious funding difficulties

agglomeration economies in urban manufacturing industries a case of japanese cities abstract the effects of urban agglomeration economies on productivities in two digit manufacturing industries is estimated using the cross section data of japanese cities in 1979 urbanization and localization economies which are major forms of urban agglomeration economies are explicitly separated the estimates of these economies vary considerably among industries light industries receive more productive advantages from urbanization economies than from localization economies but heavy industries experience these economies more from localization economies than from urbanization economies

moneyspots extraneous attributes and the coexistence of money and interest bearing nominal bonds it is folklore among monetary theorists that under laissez faire without ad hoc assumptions that favor money over bonds there do not exist equilibria in which government issued fiat money coexists with nominal default free interest bearing government bonds with similar physical characteristics this proposition is the basis for the strongest version of the rate of return dominance puzzle in this paper i show that if as has been the case throughout monetary history the physical object used as fiat money is heterogeneous in an extraneous attribute then there exist equilibria in which money coexists with interest bearing bonds

building an incentive compatible safety net abstract bank safety nets originally proposed as a means of stabilizing financial systems have become an important destabilizing influence government protection of bank debts encourages banks to undertake excessive risk particularly in response to adverse shocks to asset values reforms that would remove the destabilizing moral hazard consequences of government protection are considered both from the perspective of economic desirability and political feasibility requiring banks to maintain a minimal proportion of subordinated debt finance and restricting the means by which government recapitalization of insolvent banks occurs are the central features of promising reforms to the safety net

the implicit return on domestic and international sales an empirical analysis of us and japanese firms an empirical analysis of imputed returns on international and domestic sales suggests that neither us nor japanese manufacturing firms consistently used domestic profits to subsidize foreign operations apart from the early 1990s when the yen was particularly strong japanese firms generally realized higher profits in foreign markets than in their domestic market opposite to the conventional direction for cross subsidization us firms also tended to have higher estimated returns from foreign markets after 1985 our results are consistent with hymer s theory of ownership advantage which posits that firms with successful foreign operations must have specific advantages relative to local firms

commodity prices money surprises and fed credibilit strict monetarist theory in an extreme form holds that excessive money growth or the expectation of future money growth shows up immediately in the rapid inflation of goods prices however it is widely argued that for most goods prices are in fact sticky in the short run and reflect money growth only in the long run if one seeks a sensitive market measure of the perceived looseiless or tightness of monetary policy one must look elsewhere than at the general price level interest rates being determined in quickly adjusting financial markets are free to respond immediately to expectations regarding monetary policy in 1981 and 1982 every friday at 4 10 p m eastern standard time the federal reserve board would announce the money stock for the week ending nine days previously if the announced money stock was different from what the market had been expecting interest rates generally jumped in the same direction clearly they were responding to revisions of the expected future path of the money stock but nominal interest rates are an ambiguous indicator of expectations on the one hand an announced increase in the money stock may be received by the market as indicating a higher

agricultural policy adjustments in the korean rice economy abstract a political preference function is used to endogenize government actions in a simultaneous equation model for south korean rice policy the effects of economic changes on rice pricing decisions through estimated political weights are tested to improve our understanding of policy adjustments in that country and open the way for further research in east asia

suspension of payments bank failures and the nonbank public s losses abstract we present evidence on the effects of suspensions of payments from an episode that is close to a controlled experiment for examining those effects in 1861 about 44 of the banks in wisconsin closed 81 of the banks in illinois closed and noteholders suffered substantial losses the historical record suggests that an effective suspension of payments in wisconsin but not in illinois may explain the difference our statistical evidence indicates that the suspension of payments increased the probability of a bank remaining open by about 21 percentage points and decreased noteholders losses by about 14 cents per dollar

contagion and bank failures during the great depression the june 1932 chicago banking panic the authors examine the social costs of asymmetric information induced bank panics in an environment without government deposit insurance their case study is the chicago bank panic of june 1932 the authors compare the ex ante characteristics of panic failures and panic survivors despite temporary confusion about bank asset quality on the part of depositors during the panic which was associated with widespread depositor runs and bank stock price declines the panic did not produce significant social costs in terms of failures among solvent banks copyright 1997 by american economic association

some political economy aspects of macroeconomic linkages with agriculture though the political process leading to the 1985 farm bill has shunned proposals for significant policy change commentators on u s food and agricultural policy continue to characterize the current policy environment as arriving at a turning point where fundamental realignment of policy is possible among the factors indicating a need for change macroeconomic linkages have been singled out as primary sources of increasing difficulty in agricultural policy management implicit in this view is the idea that a heightened importance of macroeconomic factors represents a structural change in long term patterns of development for the sector that has rendered current policies anachronistic to advance such an idea is to ignore the historical record macroeconomic disturbances and their links to the agriculture sector are central in any historical account of the policy developments leading to direct federal government intervention in the agriculture sector for example the organized agricultural interest groups that emerged during the populist protest of the late nineteenth century were motivated in part in response to the monetary restriction associated with the greenback period and the return to fixed exchange rates under the gold standard in 1879 friedman and schwartz continued price deflation into the mid 1890s and real interest rates that are estimated to have averaged 8 5 in the period 1870 89 summers p 212 proved particularly burdensome to debtridden farmers the demands of the various farmer movements thus consisted of easy money or an elastic currency created by government action government funds for farm mortgages and the subtreasury scheme for creation of government paper money with stored crops as collateral the discontent voiced by farmers over the macroeconomic policies of the nineteenth century can be associated with later institutional changes that organized the federal reserve in 1913 and created the federal land banks in 1916 agricultural price support through provision of loans against crops was not achieved until 1933 with the creation of the commodity credit corporation reiter and hughes pp 1415 16 that policy change along with other provisions for federal government intervention included in the agricultural adjustment act followed a farm crisis that had its origins in macroeconomic adjustments after world war i exports of agricultural products had expanded rapidly in the united states to supply the wartime needs of europe rapid inflation accompanied the export expansion and land prices and farm mortgage debt increased this exacerbated farm sector adjustments when production was restored in europe and when world liquidity was restricted as u s lending to europe was curtailed overcapacity in world primary product markets persisted and the combination of raw material overproduction and monetary deflation that occurred has been cited as a factor generating the broader economic collapse of the 1930s kindleberger pp 98 107 unified political activity by farmers was also intense in the aftermath of world war i the congressional farm bloc coalition of republicans and democrats came into existence in 1921 and sponsored legislation e g the capper volstead act of 1922 and the agricultural credit acts of 1923 aimed at improving farm conditions through promotion of cooperatives and expansion of credit however as the relative purchasing power of farmers continued to decline through the 1920s the farm lobby organized around the theme of equality for agriculture and demanded more margaret s andrews is a resident fellow national center for food and agricultural policy resources for the future gordon rausser is a professor department of agricultdral and resource economics university of california berkeley giannini foundation paper no 785

depository institution competition in the deregulated environment the case of the large credit union the purpose of this paper is to analyse the effect of deregulation and enhanced competition on the costs and performance of large credit unions using a sample of large credit unions over the period 1979 through to 1985 we find no evidence that credit unions average costs have risen nor do we find evidence that credit unions have suffered adverse changes in operating margins large credit unions not only compete with other depository institutions but appear to have responded well in the newly competitive environment

monetary factors in the great depression this paper examines the role of monetary policy in the early stages of the great depression and considers the mechanism whereby this policy may have affected real activity i conclude that the depression was preceded by a dramatic shift towards a highly contractionary monetary policy the economic impact of this policy seems unlikely to have come through the conventional keynesian channels of a shortage of liquidity and high ex ante real interest rates but instead may have operated through unanticipated deflation and after 1930 through the disruption of financial intermediation as a consequence of the banking panics

the role of the federal reserve as lender of last resort and the seasonal fluctuation of interest rates the federal reserve s role as a lender of last resort may explain why the seasonal fluctuation of interest rates appeared to decline around 1914 the creation of the fed reduced the seasonal fluctuation of both the probability of a bank receiving an emergency loan and the probability of a financial panic the seasonality of real interest rates could therefore have declined regardless of whether the fed conducted seasonal open market operations the evidence is consistent with the lender of last resort model copyright 1991 by ohio state university press

the money market meltdown of the great depression consistent with theories of financial frictions this study finds that higher corporate risk premia and flight to quality events contributed to the increased use of a collateralized form of business lending bankers acceptances in real levels and relative to that of noncollateralized commercial paper which plunged during the great depression these short lived instruments are more timely measures of credit availability than are bank business failures and bank loan outstandings these shifts in the composition of external finance were large supporting the view that financial frictions rose and credit availability fell during the great depression

the case of the negative nominal interest rates new estimates of the term structure of interest rates during the great depression throughout the 1930s and early 1940s u s treasury bonds and notes appeared to have negative nominal yields as they approached maturity but negative nominal interest rates are impossible in a world in which one can always hold cash the resolution to this puzzle is that treasury securities in addition to making coupon payments gave the owner the right to buy a new security on a future date this paper describes the institutional environment that led to the apparent negative nominal interest rates develops a method for valuing the exchange privilege and computes accurate measures of the yield to the coupon bearing component of these composite bond options these corrected bond and not yields are then used to calculate new estimates of the term structure of interest rates from 1929 to 1949

the cost of financial frictions for life insurers during the financial crisis life insurers sold long term policies at deep discounts relative to actuarial value the average markup was as low as 19 percent for annuities and 57 percent for life insurance this extraordinary pricing behavior was due to financial and product market frictions interacting with statutory reserve regulation that allowed life insurers to record far less than a dollar of reserve per dollar of future insurance liability we identify the shadow cost of capital through exogenous variation in required reserves across different types of policies the shadow cost was 0 96 per dollar of statutory capital for the average company in november 2008 jel g01 g22 g28 g32