optimal pricing of intraday liquidity abstract this paper presents a general equilibrium model where intraday liquidity is needed because the timing of payments is uncertain a necessary and sufficient condition for an equilibrium to be efficient is that the nominal intraday interest rate be zero even when the overnight rate is strictly positive because a market for liquidity may not achieve efficiency this creates a role for the central bank i allow for the possibility of moral hazard and study policies commonly used by central banks to reduce their exposure to risk i show collateralized lending achieves the efficient allocation while for certain parameters caps cannot prevent moral hazard

trade credit in a monetary economy abstract this paper examines the importance of financial and technological stochastic trends in the context of a stochastic dynamic general equilibrium monetary economy with multiple means of payment in contrast to earlier empirical work we find support for both a long run substitution condition between money trade credit and interest rates as well as a long run transactions demand for alternative payments media consistent with real business cycle frameworks

banking panics information and rational expectations equilibrium this paper shows that bank runs can be modeled as an equilibrium phenomenon we demonstrate that some aspects of the intuitive story that bank runs start with fears of insolvency of banks can be rigorously modeled if individuals observe long lines at the bank they correctly infer that there is a possibility that the bank is about to fail and precipitate a bank run however bank runs occur even when no one has any adverse information extra market constraints such as suspension of convertibility can prevent bank runs and result in superior allocations banking panics were a recurrent phenomenon in the united states until the 1930s they have re emerged as a source of public concern and much theoretical research recently in this paper we provide an information theoretic rationale for bank runs the traditional story is that contagion is an important aspect of bank runs the idea seems to be that when the general public observes large withdrawals from the banking system fears of insolvency grow resulting in even larger withdrawals of deposits in our model some individuals withdraw because they get information that future returns are likely to be low uninformed individuals observing this also have an incentive to liquidate their investments in addition some individuals need to withdraw deposits for other than informationally based reasons thus if the random realization of such a group of individuals is unusually large then the uninformed individuals will be misled and will precipitate a run on the bank the technology is such that a large volume of withdrawals involves liquidation costs consequently runs on the bank do impose social costs a mechanism that may reduce these costs in our model is to suspend convertibility if withdrawals are high however those individuals who need to withdraw their assets for liquidity reasons are worse off ex post our model provides a rationalization for restrictions in demand deposits that were widespread prior to 1929 friedman and schwartz 7 suggest that restrictions of payments ensured

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

a framework for monetary and banking analysis one of the benefits of monetary instability is that it reminds us both by inducing change in financial institutions and by bringing out the monetary cranks that the monetary arrangements we take for granted are not immutable in this paper i set out and analyse a simple model of money banking and price level determination the model is first used to illustrate recent developments in the theory and analysis of banking the assumptions are then extended to analyse price level determination in an economy becoming an inside money economy as high powered money goes out of use the paper concludes by raising the major unresolved questions about banking money and price level determination the topics i shall discuss have only recently again become popular in the united states but they have a long history at the centre of monetary and macro economics the contributions of wicksell 1936 original in 1898 patinkin 1965 the radcliffe commission 1960 tobin 1963 and gurley and shaw 1963 are the best known of the classic analyses more recently black 1970 fama 1980 and others have returned to the questions of what if anything distinguishes banks from other financial intermediaries how an inside money economy would operate and what monetary arrangements other than current fiat money systems might be developed

production based asset pricing in monetary economies with transactions costs a general equilibrium asset pricing model for a monetary economy with capital accumulation fin and endogenous financial structure is constructed in which there is a meaningful between monetary policy inflation taxes investment decisions and private financial arrangements a differential stochastic liquidity premium applies in equilibrium to consumption and investment purchases a production version of the capital asset pricing model is constructed the presence of endogenous financial arrangements is shown to play a key role in explaining potential distortions in the equilibrium risk premia associated with technological uncertainty numerical work indicates 1 that return anomalies are potentially large and 2 that the model has implications for empirical implementations for the partial equilibrium production based asset pricing models such as cochrane 1991 1996 and braun 1993 copyright 1996 by the london school of economics and political science

interest rates and currency prices in a two country world abstract this paper is a theoretical study of the determination of prices interest rates and currency exchange rates set in an infinitely lived two country world which is subject both to stochastic endowment shocks and to monetary instability formulas are obtained for pricing all equity claims nominally denominated bonds and currencies and these formulas are related to earlier closely related results in the theories of money finance international trade

monetary stabilization and the informational value of monetary aggregates a simple stochastic model is developed which demonstrates that information on the nominal value of money conveys sufficient information about the disturbance to currency and deposit demand so that monetary prices such as adjusting the level of bank reserves have no impact on the dispersion of price level forecast errors however if information on monetary aggregates is obtained only with a lag then reserve requirements can reduce the disturbances to the demand for high powered money and hence prices such a reserve ratio depends critically on the variance covariance matrix of shocks to the monetary demands

estimation and comparison of two simple models of equivalence scales for the cost of children in this paper two simple models of equivalence scales for the cost of children were presented estimated and their underlying assumptions were tested those attributed to engel and rothbarth the data are from the greek household expenditure survey undertaken in 1981 1982 and concern 1669 households it seems likely that the engel model probably overstates whilst the rothbarth model may understate the true cost of children excerpt

what s different about banks abstract negotiable certificates of deposit cd s trade in the capital market in competition with other securities like commercial paper and bankers acceptances if cd s must pay lenders competitive monetary interest the reserve tax on cd s is borne by bank borrowers viability of the tax means there must be something special about bank loans that makes some borrowers willing to pay higher interest rates than those on other securities of equivalent risk moreover there must be something special about banks that prevents other intermediaries from competing to assure that it never pays to finance loans with cd s

endogenous multiple currencies in this paper i study a model in which households can decide which currency or currencies they will accept i provide a simple set of assumptions that are sufficient to prevent the indeterminacy of the exchange rate in the sense of kareken and wallace 1981 in a two country model stable equilibria have either a single currency or national currencies i also show currency substitution occurs as an endogenous response to high growth in the stock of a currency

money and credit as means of payment abstract a stochastic economic environment is presented in which the mix of cash and resource costly credit used as means of payment is endogenous for reasonable values of the credit cost parameter velocity can be quite variable and sensitive to the nominal interest rate those parameter values also generate larger welfare costs of inflation than have been found previously and a sizable impact of inflation on real interest rates

rural residential demand for electricity a simulateous equation partial adjustment model of rural electric cooperatives recs residential demand for electricity highlights the characteristics of rural energy demand and the tendency of rural customers to make greater short term adjustments to price changes the differences between rural and urban use patterns however are not consistent throughout the country the model also points to how changes in the number of households and per capita income can affect rural demand in planning for the future the cooperatives must identify and be aware of the unique features of their service areas not only in respect to regional characteristics but also in terms of the distinctive patterns or rural demand 17 references

the search for a stable money demand function a survey of the post 1973 literature phe question of whether the demnand function for money is stable is one of the most important recurring issues in the theory and application of macroeconomic policy what is being sought in a stable demand function is a set of necessary conditions for money to exert a predictable influence on the economy so that the central bank s control of the money supply can be a useful instrument of economic policy as such the notion of a stable demand function appears to involve three key elements e g john t boorman 1976 p 317 and david e w laidler 1977 pp 34 35 first the demand for money relation should be highly predictable in a statistical sense as measured by the usual goodness of fit statistics precision of estimated coefficients and presumably its ability to forecast accurately out of sample second a stable demand function for money has relatively few arguments a relationship that requires knowledge about a large number of variables in order to pin it down is in effect not predictable finally the variables that appear as arguments in the function should represent significant links to spending and economic activity in the real sector in sum a stable demand function for money means that the quantity of money is predictably related to a small set of key variables linking money to the real sector of the economy the importance of a stable money demand function for monetary policy can be illustrated with the standard is lm model in which interest rates and gnp are the endogenous variables in this context a stable demand function for money translates into a well defined relationship between money interest rates and gnp

electricity demand in a developing country paraguay this study analyzes the residential and commercial demand for electricity in ten regions in paraguay for 1970 1977 models that are both linear and nonlinear in the parameters are estimated the nonlinear model takes advantage of prior information on the nature of the appliances being utilized and simultaneously deals with the demand discontinuities caused by appliance indivisibility three dynamic equations including a novel cumulative adjustment model all indicate rapid adjustment to desired appliance stock levels finally the multiproduct surplus loss obtained from an estimated demand equation is used to measure the welfare cost of power outages 15 references

consumers motivational associations favoring free range meat or less meat abstract the present paper analyzed the motivational orientations of consumers who choose to eat 1 small portions of meat or 2 ethically distinctive meat such as free range meat in relation to the motivational orientations of their opposites going beyond the conventional approach to consumer behavior our work builds on recent insights in motivational psychology about the ways in which people may approach matches or avoid mismatches to the desired end state of getting enough nourishment by eating the right food consumers who tend to approach matches are often focused on choosing the best alternatives from their choice set chronic promotion focus consumers who tend to avoid mismatches are often focused on rejecting unacceptable alternatives from their choice set chronic prevention focus distinguishing these two motivational orientations provides a scientific basis for the aim to foster more sustainable food consumption and production patterns our approach involves a systematic analysis of consumers goal orientations regarding meat choices we examined how a sample of dutch consumers n 939 described their chronic motivational orientations regarding food their own meat choices and about two weeks later their promotion and prevention oriented associations favoring either small portions of meat and free range meat or their opposites largely in line with our hypotheses we found that consumers with a chronic prevention orientation avoided the mismatch of large portions also those of them who paid the premium price of free range meat considered eating meat produced by intensive farming a mismatch conversely if consumers with a chronic promotion orientation paid the premium price of free range meat they considered this the best alternative from their choice set accordingly choosing a small portion of meat was often approached with a prevention orientation and choosing free range meat with either a prevention or a promotion orientation these differences in motivational orientation underline that the pursuit of sustainability requires careful consideration of not just undesirable but also of desirable alternatives

optimal fiscal and monetary policy in an economy without capital abstract this paper is concerned with the structure and time consistency of optimal fiscal and monetary policy in an economy without capital in a dynamic context optimal taxation means distributing tax distortions over time in a welfare maximizing way for a barter economy our main finding is that with debt commitments of sufficiently rich maturity structure an optimal policy if one exists is time consistent in a monetary economy the idea of optimal taxation must be broadened to include an inflation tax and we find that time consistency does not carry over an optimal inflation tax requires commitment by rules in a sense that has no counterpart in the dynamic theory of ordinary excise taxes the reason time consistency fails in a monetary economy is that nominal assets should from a welfare maximizing point of view always be taxed away via an immediate inflation in a kind of capital levy this emerges as a new possibility when money is introduced into an economy without capital

the optimal inflation path in a sidrauski type model with uncertainty abstract in this paper it is shown that in a sidrauski type model with uncertainty the chicago rule remains valid as a prescription for the average rate of inflation although there is a systematic difference between the perfect foresight and the uncertainty case quantitatively however the difference turns out to be very small the paper shows how to calculate the optimal monetary policy as a function of the state variables using the method of parameterized expectations in terms of expected utility the optimal policy is as good as the simple policy that reduces the money supply at the rate of time preference

welfare improving credit controls abstract credit controls are generally believed to result in an inefficient allocation of resources this paper presents a counterexample it displays a general equilibrium multi good model with spatial separation for which steady state equilibria exist in which both cash i e fiat currency and trade credit are used in exchange transaction costs restrictions on the timing of trade and a positive nominal interest rate cause the laissez faire equilibrium to be nonoptimal a quantitative restriction on the use of trade credit can yield a pareto superior allocation

interest rates and prices in an inventory model of money with credit abstract using a segmented market model that includes state dependent asset market decisions along with access to credit we analyze the impact that transactions credit has on interest rates and prices the availability of credit allows agents to significantly smooth consumption reduce the movements in velocity prices become quite flexible and liquidity effects are dampened as credit costs decline in the model so does the effectiveness of monetary policy we also investigate the recessionary consequences of a shock to the cost of credit and find that the model s predictions align well with the empirical evidence

money and asset prices in a cash in advance economy an asset pricing model with money introduced via a cash in advance constraint is presented the monetary velocity is variable hence money demand does not obey the trivial quantity equation the effects of disturbances in output and money growth on real balances the price level and interest rates are examined monetary policy has effects on real asset prices the fisher relation and the premium on nominal bonds are discussed the precise role of the timing of information and transactions for properties of price levels and interest rates are clarified

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

reserve requirements and optimal seigniorage abstract this note presents a model of optimizing agents who chose to hold deposits at financial intermediaries which are required to hold fractional reserves of fiat money when the stock of fiat money is expanded the reserve requirement functions as a tax on deposits the combination of reserve requirements and inflation results in a lower steady state utility than a direct tax on deposits the optimal monetary policy when reserves are required is to minimize reserve requirements and inflate without limit the stock of fiat money

sticky goods prices flexible asset prices monopolistic competition and monetary policy a monetary general equilibrium asset pricing model with sticky goods prices is developed goods prices are set by monopolistically competitive firms that maximize stock market value equilibria with underutilization of resources excess capacity in some states result in contrast to previous monetary asset pricing models the degree of competition affects capacity utilization monetary policy can affect output and resource utilization in addition to real asset prices depending upon the amount of information available to the monetary authority

sustainability labels on food products consumer motivation understanding and use this study investigates the relationship between consumer motivation understanding and use of sustainability labels on food products both environmental and ethical labels which are increasingly appearing on food products data was collected by means of an online survey implemented in the uk france germany spain sweden and poland with a total sample size of 4408 respondents respondents expressed medium high to high levels of concern with sustainability issues at the general level but lower levels of concern in the context of concrete food product choices understanding of the concept of sustainability was limited but understanding of four selected labels fair trade rainforest alliance carbon footprint and animal welfare was better as some of them seem to be self explanatory the results indicated a low level of use no matter whether use was measured as self reported use of different types of information available on food labels or as use inferred from the results of a choice based conjoint analysis hierarchical regression indicated that use is related to both motivation and understanding and that both motivation understanding and use are affected by demographic characteristics human values as measured by the schwartz value domains and country differences the results imply that sustainability labels currently do not play a major role in consumers food choices and future use of these labels will depend on the extent to which consumers general concern about sustainability can be turned into actual behaviour

food labeling and eco friendly consumption experimental evidence from a belgian supermarket using an incentive compatible framed field experiment we investigate whether consumers food consumption is more eco friendly when the information about a product s environmental impact is more easily accessible through an online survey we identify a food label that is perceived to be the most easily accessible for assessing a product s eco friendliness among six alternatives these alternatives vary on multiple dimensions including whether a standardized score of the overall environmental impact is added this new food label is subsequently tested in an experimental food market embedded in a belgian supermarket we find that the presence of the new label that was preselected in the online survey leads to more eco friendly food consumption relative to either the label currently used in the supermarket or the label that contains the raw information of the environmental impact in our experimental food market the use of an easy to interpret but comprehensive environmental information label increases the overall eco friendliness of our subjects food consumption by about 5 3 relative to the default label used in current markets

money and interest in a cash in advance economy the authors analyze an aggregative general equilibrium model in which the use of money is motivated by a cash in advance constraint applied to purchases of a subset of consumption goods the system is subject to both real and monetary shocks which are economy wide and observed by all they develop methods for verifying the existence of characterizing and explicitly calculating equilibria copyright 1987 by the econometric society

monetary policy and bank regulations in an economy with financial innovations this is a study of financial innovations and moves towards the cashless society in a general equilibrium cash in advance model it is assumed that a subset of goods cash goods and check goods

the liquidity services of money this paper investigates the liquidity services provided by cash interest bearing check balances and securities which pay higher interest than checks securities must be traded before con sumers know their desired level or composition of consumption cash a nd checks are more liquid since they are available on demand cas h is more liquid than checks since it is more widely useable as a medium of exchange cash will often be used to buy goods which could be bought by check and the demand for cash will be less sensitive t han the demand for checks to the interest paid on check balances copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the economics of rural electrification projects abstract this paper focuses on the economics of rural electrification and project selection the broad criteria for preliminary screening of re projects are described in relation to national policy objectives the economic justification is the key step in the project processing cycle and depends on the present discounted value of benefits exceeding costs a comprehensive analytical model for identifying benefits is presented and the practical problems of evaluating them are described finally the paper contains the detailed economic evaluation of an re project in malaysia

financial intermediation and price level control abstract because currency and deposits are not perfect substitutes in all transactions there are simplified financial systems in which control of the supply of currency is sufficient to control the price level most important in a currency supply approach price level control does not imply control of financial intermediation thus price level goals never have to be weighed against the availability of credit to finance real activity

nominal prices and interest rates in general equilibrium endowment shocks the outstanding problem of neoclassical monetary theory has been to determine the effect of changes in the money stock on nominal prices and interest rates the classic result is that in the absence of money illusion contracts fixed in nominal terms and other such impedimenta money is neutral thus a doubling of the money stock results in a doubling of the nominal price level and in no change in nominal interest rates except at most for a temporary liquidity effect while the price level is rising to its new level during the adjustment period the nominal interest rate might temporarily drop this neutrality result has conventionally been proved in a static framework in intertemporal models it is necessary to distinguish between static neutrality and dynamic neutrality if a model displays dynamic neutrality fluctuations in the money stock immediately induce a proportional change in the nominal price level and no change in nominal interest rates or any real variable this property is different from and stronger than static neutrality which in dynamic models states only that if the money stock at all dates is doubled so will be the price level at all dates the effects of exogenous shocks in the monetary growth rate on nominal prices and interest rates are analyzed a representative individual rational expectations framework is adopted and a demand for money is generated by entering money in the utility function the effects of monetary shocks on inflation and interest rates are shown to depend on the autocorrelation of the monetary growth rate for example under serial independence the inflation rate equals the monetary growth rate and the nominal interest rate is nonrandom while under positive negative autocorrelation the nominal interest rate is affected positively negatively by positive growth rate shocks i am grateful to the staff of the federal reserve bank of philadelphia to the finance groups at the university of southem california and virginia polytechnic institute and to c j lacivita dan peled john seater and jon sonstelie for valuable comments on earlier drafts

the welfare cost of inflation in general equilibrium abstract this paper presents a general equilibrium monetary model in which inflation distorts a variety of marginal decisions although individually none of the distortions is very large they combine to yield substantial welfare cost estimates a sustained 4 percent inflation like that experienced in the us since 1983 costs the economy the equivalent of 0 41 percent of output per year when currency is identified as the relevant definition of money and over 1 percent of output per year when m1 is defined as money the results illustrate how the traditional partial equilibrium approach can seriously underestimate the true cost of inflation

optimal departures from marginal cost pricing focuses on departures from marginal cost pricing optimal allocation or resources level of tax revenue that will be collected by the government theorems developed for resource allocation ebsco

philippine electric demand and equivalence scales the literature on residential electricity demand in developing countries is small based principally on latin american experience and with the exception of westley 24 25 employs highly aggregated data price elasticities are generally found to be less than u s elasticities 26 39 one explanation by westley is that energy substitution possibilites may be more limited in latin american countries he further suggests that since the household budget share of electricity is smaller in these countries the slutsky equation would imply an own price elasticity closer to the compensated elasticity and less influenced by income elasticity as a refinement westley also suggests that substitute fuels are more available in rural versus urban settings and that as a result price elasticity may be larger empirically however he found no difference 25 257 261 26 125 income elasticity findings on the other hand are varied pindyck s 17 evidence and inferences are that these elasticities are larger in developing than developed countries and in both cases decline with per capita income bemdt and samaniego 3 find results for mexico that agree in the first part with pindyck in fact when electric system connection rates are considered they suggest that their findings show an income elasticity greater than one 2

nontraditional partial adjustment models and their use in estimating the residential demand for electricity in costa rica the present study attempts to augment our very limited knowledge of electricity demand in the developing world by analyzing residential electricity consumption in a middle income level latin american country costa rica while a number of econometric investigations of the determinants of residential electricity demand have been carried out in developed countries using good data and a reasonably complete set of variables few comparable studies are available for the developing world in latin america the only two of which we are aware are berndt and samaniego 1984 and westley 1984a the former studies household electricity consumption in mexico an upper income level latin state the latter analyzes residential and commercial electricity demand in a lower income latin american country paraguay this paper is organized as follows the balance of this introduction summarizes the major issues and results then section ii discusses variables iii presents the basic econometric results and iv examines the issue of dynamic adjustment and discusses the need for more flexible partial adjustment pa models appendix a derives the linear appliance price index appendix b supplements the discussion of dynamic adjustment in section iv and appendix c derives the flexible pa models from cost minimization principles price and income elasticities

money and banking in a cash in advance economy this paper studies banking and financial innovations in a stochasti c general equilibrium model assuming the existence of two distinct types of goods cash goods which can only be purchased by cash and check goods which can also be purchased by checks drawn against interest bearing bank accounts the authors analyze the effects of changes in the payment s structure i e the share of check goods reserve requirements on banks and changes in the supply of reserves the authors find e g that an increased share of check goods and a decrease of the bank reserve ratio in general both lead to a decrease in the variance of the price level copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association