ranking disclosure policies in all pay auctions in this paper we study information disclosure policies in all pay auctions with incomplete information two symmetric players have either high or low private value the contest organizer observes players values ex post and can commit ex ante to four different symmetric information policies exhaustively she can fully disclose or conceal the players types and she can disclose their types if and only if when both are high or if and only if when both are low we characterize the unique equilibriums and completely rank the four policies by various criteria we find the full concealment policy extracts highest aggregate expected effort followed by the policy of disclosing types if and only if when both are high the policy of disclosing types if and only if when both are low induces least aggregate expected effort players enjoy highest expected payoffs under the policy of disclosing types if and only if when both are low the other three policies yield the same expected payoffs to players in terms of prize allocation efficiency the full concealment policy is ranked highest and the full disclosure policy is ranked lowest in between the other two policies rankings depend on the probability of high type jel c72 d44 d82 d83 j48

estimation of a taiwan monetary reaction function with time varying parameters this paper employs a nonlinear kalman filter to examine the time varying responses of taiwan s monetary policy in the presence of a limited dependent variable the kalman filtered parameters reveal that the responses are not constant but change over time furthermore a counter cyclical reaction function is identified and a stronger than usual discretionary policy during the recessions is found

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

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

bank risk taking securitization supervision and low interest rates evidence from the euro area and the u s lending standards using a unique dataset of the euro area and the u s bank lending standards we find that low monetary policy short term interest rates soften standards for household and corporate loans this softening especially for mortgages is amplified by securitization activity weak supervision for bank capital and low monetary policy rates for an extended period conversely low long term interest rates do not soften lending standards finally countries with softer lending standards before the crisis related to negative taylor rule residuals experienced a worse economic performance afterward these results help shed light on the origins of the crisis and have important policy implications the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

how to weigh unemployment relative to inflation in monetary policy the monetary policy mandate for the federal reserve and of the riksbank are essentially the same and boil down to stabilizing inflation around the inflation target and employment or unemployment around a long run sustainable rate the relative weight on stabilizing unemployment or employment versus stabilizing inflation may be close to one a positive unemployment gap forecast normally calls for a positive inflation gap forecast

rent seeking contests with incomplete information we consider rent seeking contests with two players who each have private information about their own cost of effort we consider both discrete and continuous distributions of costs and give results for each case focusing on existence of equilibrium

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

measuring the liquidity effect this paper measures the effect on the federal funds rate of an open market operation the paper deals with simultaneous equations bias by developing a proxy for the errors the federal reserve makes in forecasting the extent to which treasury operations will add or drain reserves available to private banks these errors induce fluctuations in bank reserves which have measurable consequences for the federal funds rate the paper estimates that a reduction in nonborrowed reserves of 30 million if sustained for an entire fourteen day reserve maintenance period will cause the federal funds rate to rise by ten basis points copyright 1997 by american economic association

information sharing in private value lottery contest we investigate players incentives to disclose information on their private valuations of the prize ahead of a rent seeking contest information sharing arises in equilibrium if types are concentrated enough whereas sharing information is strictly dominated if types are sufficiently dispersed

in defense of base drift the federal reserve has been criticized for allowing the base from which it calculates its target growth paths for the monetary aggregatesto drift from year to year in response to past deviations from target drift in the base implies that target misses permanently affect the levels of the monetary aggregates using a simple theoretical model this paper shows that the optimal degree of base drift consistent withprice stability depends on the importance of permanent versus transitory income and velocity disturbances neither zero base drift nor complete base drift are likely to be compatible with price stability copyright 1986 by american economic association

do bank characteristics influence the effect of monetary policy on bank risk abstract we analyze whether bank characteristics affect the impact of monetary policy on bank risk we find that the insulation effects produced by capital and liquidity were lower for banks operating in countries with particularly low interest rates

product market competition and the industry price cost markup fluctuations abstract we examine the role played by imperfect competition in the response of markups to energy price and monetary changes we find i for concentrated industries markups increase with monetary expansion and decrease when energy prices increase the elasticity with respect to energy prices is greater than monetary changes ii for low concentration industries markups are virtually unaffected by monetary changes and the energy price elasticities are statistically insignificant iii markups are procyclical over the industry specific cycle and iv increased import competition lowers markups only in the concentrated industries the energy price increases decreases during the 1970s 1980s may have been a key factor contributing to the narrowing widening of the markup gap between high and low concentration industries we provide evidence that procyclical markups in concentrated industries are not being driven by differences in the degree of labor hoarding between low and high concentration industries

the identification of monetary policy disturbances explaining the liquidity puzzle abstract this paper examines recent work on the identification of monetary policy disturbances its main finding is that the empirical anomalies found in the literature reflect a failure to properly address the federal reserve s policy of accommodating reserve demand shocks a new method of identifying monetary policy using nonborrowed reserves is proposed using this specification policy has a strong persistent liquidity effect regardless of subsample policy granger causes output even in the presence of interest rates explaining approximately 49 of the variance in output at a two year horizon and the residual explanatory power of interest rates for output is negligible

the impact of the financial crisis on new firm registration the authors use panel data on the number of new firm registrations in 95 countries to study the impact of the business environment and 2008 financial crisis on new firm registration the data show that more dynamic formal business creation occurs in countries that provide entrepreneurs with a stable legal and regulatory regime fast and inexpensive business registration process more flexible employment regulations and low corporate taxes the data also show that nearly all countries experienced a sharp drop in business entry during the crisis this drop is more pronounced in countries with higher levels of financial development and countries more affected by the crisis

money income prices and interest rates including data from the 1980s sharply weakens the postwar time series evidence indicating significant relationships between money however defined and nominal income or between money and either real income or prices separately focusing on data from 1970 onward destroys this evidence altogether evidence indicating cointegration of real income and real money balances with due allowance for the effect of interest rates also deteriorates when the sample extends through the 1980s a positive finding is that the spread between the commercial paper rate and the treasury bill rate consistently contains highly significant information about future movements in real income copyright 1992 by american economic association

sent seeking with private values we study a rent seeking contest in which the players valuations of the prize are private information we determinea bayesian equilibrium and give conditions under which theequilibrium exists although players are ex ante symmetric increased possibilities for ex post lopsidedness lead toless aggressive bidding lopsidedness increases as players values become less positively correlated or as the variationin possible values increases we also compare theprivate information contest to a related public informationcontest in which the realizations of values are commonknowledge the contests are equally efficient and players areindifferent between the two but risk averse sellers of theprize are not

the determinants of bank interest margins theory and empirical evidence this paper has developed a model of bank margins or spreads in which the bank is viewed as a risk averse dealer it was demonstrated that an interest spread or margin would always exist and that this was the result of transactions uncertainty faced by the bank moreover it was shown that this pure spread depended on four factors the degree of managerial risk aversion the size of transactions undertaken by the bank bank market structure and the variance of interest rates the model implied that liability and asset structures had to be analyzed together since they were directly interrelated through transactions uncertainty it was shown that because of this transactions uncertainty hedging behavior was perfectly rational within an expected utility maximizing framework extending the model from a structure with one kind of loan and deposit to loans and deposits with many maturities should lead to further interesting insights into margin determination especially as portfolio effects may become apparent

diversification in banking is noninterest income the answer this paper assesses potential diversification benefits in the u s banking industry from the steady shift toward activities that generate fee income trading revenue and other types of noninterest income in the aggregate declining volatility of net operating revenue reflects reduced volatility of net interest income not diversification benefits from noninterest income which is quite volatile and increasingly correlated with net interest income at the bank level greater reliance on noninterest income particularly trading revenue is associated with lower risk adjusted profits and higher risk this suggests few obvious diversification benefits from the ongoing shift toward noninterest income

the equilibrium fed funds rate and the indicator properties of term structure spreads i introduction interest rate spreads figure prominently in the economics literature as monetary policy indicators for instance while some writers have focused on the predictive power of the spread between the six month commercial paper rate and the six month treasury bill rate others have emphasized spreads between short and long term interest rates 1 this paper follows the latter tradition my analysis is motivated by the work of bernanke and blinder 1992 who compare the difference between the federal funds rate and the ten year government bond rate with other interest rate spreads and find it to be a particularly useful predictor of future economic activity the rationale for using term structure spreads as monetary policy indicators is relatively straightforward 2 when assessing the stance of monetary policy it is not just the level of the federal funds rate that matters but how it relates to some implicit notion of equilibrium interest rates this insight is not new and can be found in the seminal work of wicksell 1898 xxv who wrote that it is not a high or low rate of interest in the absolute sense which must be regarded as influencing demand the causative factor is the current rate on loans as compared with what i shall be calling the natural rate of interest the direct empirical implementation of the wicksellian insight is however obviously hampered by the fact that the natural rate of interest is not an observable variable as suggested by laurent 1988 and bernanke and blinder 1992 the slope of the term structure is often used as a proxy for the spread between a short term interest rate and its unobservable equilibrium level thus the yield curve steepens as short term interest rates are perceived to be below their equilibrium levels i follow a more direct approach to measuring the stance of monetary policy instead of using the slope of the term structure as a proxy for the gap between observed and equilibrium federal funds rates i introduce a model based method to constructing a measure of the level of the equilibrium funds rate as described below this equilibrium rate is calculated for the real sectors of the economy conditional on the observed rate of inflation thus the equilibrium rate is constructed to be independent of the inflation objectives of monetary policy and the implied difference between actual and equilibrium rates the funds rate spread constitutes my monetary policy indicator this paper provides an overview of the proposed methodology and compares the funds rate spread with traditional indicators of the monetary policy stance ii a model based measure of the spread i rely on the estimated structure of a macroeconometric model to measure the equilibrium federal funds rate the theoretical framework is the mit penn ssrc mps model which is housed at the federal reserve board this is a large scale quarterly model of the u s economy it consists of more than 100 behavioral equations about 200 identities and over 100 exogenous variables in its theoretical foundations the long run properties of the model are akin to a neoclassical growth model whereas the dynamic structure is essentially keynesian 3 the approach used in this paper is a departure from the traditional literature in at least two dimensions first i use an explicit theoretic framework to compute the equilibrium measure as opposed to the empirically based approach of using long term interest rates second by focusing on the equilibrium level of the federal funds rate i have a more direct way to gauge the stance of monetary policy the equilibria analyzed here correspond to intermediate run dynamics a time frame that seems most relevant for the conduct of monetary policy conceptually the equilibrium notion i explore is a simple one for a given position of the mps model s is block the equilibrium federal funds rate is defined as the one consistent with unemployment at its natural rate after all lags in the model have fully worked through

what measures chinese monetary policy abstract this paper models the pbc s operating procedures in a two stage vector autoregression framework we decompose changes in policy variables into exogenous and endogenous components in order to find a clean monetary policy indicator whose changes are mainly policy induced our main findings are twofold first the pbc s operating procedures have evolved over time since about 2006 they have developed to a relatively stable regime second its operating procedures are neither pure interest rate targeting nor pure reserves targeting but a mixture a set of indicators all contain information about the policy stance finally we construct a new composite indicator of the overall policy stance

do depositors punish banks for bad behavior market discipline deposit insurance and banking crises this paper empirically investigates two issues largely unexplored by the literature on market discipline we evaluate the interaction between market discipline and deposit insurance and the impact of banking crises on market discipline we focus on the experiences of argentina chile and mexico during the 1980s and 1990s we find that depositors discipline banks by withdrawing deposits and by requiring higher interest rates deposit insurance does not appear to diminish the extent of market discipline aggregate shocks affect deposits and interest rates during crises regardless of bank fundamentals and investors responsiveness to bank risk taking increases in the aftermath of crises

in search for yield survey based evidence on bank risk taking abstract monetary policy can have an impact on economic and financial stability through the risk taking of banks falling interest rates might induce investment into risky activities this paper provides evidence on the link between monetary policy and bank risk taking we use a factor augmented vector autoregressive model favar for the us for the period 1997 2008 besides standard macroeconomic indicators we include factors summarizing information provided in the federal reserve s survey of terms of business lending stbl these data provide information on banks new loans as well as interest rates for different loan risk categories and different banking groups we identify a risk taking channel of monetary policy by distinguishing responses to monetary policy shocks across different types of banks and different loan risk categories following an expansionary monetary policy shock small domestic banks increase their exposure to risk large domestic banks do not change their risk exposure foreign banks take on more risk only in the mid 2000s when interest rates were too low for too long

the objectives and priorities of monetary policy under different federal reserve chairmen this paper utilizes a monetary policy reaction function that relates policy intentions to forecasts of policy objectives estimates of this reaction function over the post accord period suggest that the burns period was unique while the martin and volcker periods were extremely similar the burns period was structurally distinct from both the martin and volcker periods further model specifications that allow for an independent influence on monetary policy from different presidential administrations also imply that there are significant differences in monetary policy under different fed chairmen copyright 1990 by ohio state university press

the macroeconomic effects of large scale asset purchase programmes the effects of asset purchase programs on macroeconomic variables are likely to be moderate we reach this conclusion after simulating the impact of the federal reserve s second large scale asset purchase program lsap ii in a dsge model enriched with a preferred habitat framework and estimated on u s data our simulations suggest that such a program increases gdp growth by less than half a percentage point although the effect on the level of gdp is very persistent the program s marginal contribution to infl ation is very small one key reason for our fi ndings is that we estimate a small degree of fi nancial market segmentation if we enrich the set of observables with a measure of long term debt the semi elasticity of the risk premium to the amount of debt in privatesector hands is substantially smaller than that reported in the recent empirical literature in this case our baseline estimates of the effects of lsap ii on the macroeconomy decrease by at least a factor of two throughout the analysis a commitment to an extended period at the zero lower bound for nominal interest rates increases the effects of asset purchase programs on gdp growth and infl ation

what does the bundesbank target abstract although its primary ultimate objective is price stability the bundesbank has drawn a distinction between its money focused strategy and the inflation targeting approach recently adopted by a number of central banks we show that holding constant the current forecast of inflation german monetary policy responds very little to changes in forecasted money growth we conclude that the bundesbank is much better described as an inflation targeter than as a money targeter an additional contribution of the paper is to apply the structural var methods of b bernanke and i mihov measuring monetary policy working paper no 5145 national bureau of economic research cambridge ma june 1995 to determine the optimal indicator of german monetary policy we find that the lombard rate has historically been a good policy indicator although the use of the call rate as an indicator cannot be statistically rejected

words are not all created equal a new measure of ecb communication we develop a field specific dictionary to measure the stance of the european central bank ecb monetary policy dovish neutral hawkish and the state of the eurozone economy positive neutral negative through the content of ecb press conferences in contrast with traditional textual analysis we propose a novel approach using term weighting and contiguous sequence of words n grams to better capture the subtlety of central bank communication we find that quantifying ecb communication using our field specific weighted lexicon helps to explain future ecb monetary decisions when considering an augmented taylor rule regarding european stock market volatility we find that markets are more less volatile on the day following a conference with a negative positive tone about the euro area economic outlook our indicators significantly outperform a textual classification based on the loughran mcdonald or apel blix grimaldi dictionaries and a media based measure of economic policy uncertainty

budget deficits inflation risk and asset prices abstract kitchen examines how us budget deficit news affects asset prices and concludes that news of lower deficits reduces the inflation risk premium this paper constructs narrative histories of several deficit reduction laws to identify when markets learned that deficits would fall it then estimates a multi factor model that allows the inflation risk premium to vary following news of deficit reductions the results indicate that there is a large and statistically significant drop in the factor price associated with inflation following news that budget deficits would decline

disclosure policy in a multi prize all pay auction with stochastic abilities this paper investigates whether a contest organizer should disclose private information about bidders abilities in a multi prize all pay auction bidders abilities are randomly distributed and observed by the contest organizer the organizer decides whether to disclose this information publicly we find that concealing the information elicits higher expected total effort regardless of the distribution of abilities in addition we find that the rent dissipation rate of the contest does not depend on the disclosure policy

narrative and var approaches to monetary policy common identification problems abstract romer and romer romer c d romer d h 1989 does monetary policy matter a new test in the spirit of friedman and schwartz in blanchard o j fischer s eds nber macroeconomics annual 1989 mit press cambridge ma pp 121 170 romer c d romer d h 1994 monetary policy matters journal of monetary economics 34 75 88 adopted a narrative approach to address the identification problems in time series models of monetary policy based on federal reserve documents the romers created a dummy variable equal to one in periods when the federal reserve contracted in response to perceived inflationary pressures this paper shows 1 the dummy variable is predictable from past macroeconomic variables reflecting the endogenous response of policy to the economy 2 unpredictable changes in the dummy do not generate dynamic responses that look like the effects of monetary policy the identification problems that plague time series models also afflict the narrative approach

central bank communication and monetary policy a survey of theory and evidence over the last two decades communication has become an increasingly important aspect of monetary policy these real world developments have spawned a huge new scholarly literature on central bank communication mostly empirical and almost all of it written in this decade we survey this ever growing literature the evidence suggests that communication can be an important and powerful part of the central bank s toolkit since it has the ability to move financial markets to enhance the predictability of monetary policy decisions and potentially to help achieve central banks macroeconomic objectives however the large variation in communication strategies across central banks suggests that a consensus has yet to emerge on what constitutes an optimal communication strategy

the effect of changes in the federal funds rate target on market interest rates in the 1970s abstract this paper examines the influence of monetary policy on interest rates by estimating the effect of changes in the federal funds rate target the federal reserve s policy instrument on market interest rates in the 1970s we find that changes in the target caused large movements in short term rates and smaller but significant movements in intermediate and long term rates we hypothesize that the similarity of the reactions of three six and twelve month rates to changes in the target offers a possible explanation for the lack of support for the expectations theory from studies that have tested the theory using these rates

imperfect competition risk taking and regulation in banking abstract we asses the welfare implications of banking competition under various deposit insurance regimes in a model of imperfect competition with social failure costs and where banks are subject to limited liability we study the links between competition for deposits and risk taking incentives and conclude that the welfare performance of the market and the appropriateness of alternative regulatory measures depend on the degree of rivalry and the deposit insurance regime specifically when competition is intense and the social failure costs high deposit rates are excessive both in a free market and with risk based insurance if insurance premiums are insensitive to risk then the same is true even if there is no social cost of failure we find also that in an uninsured market with nonobservable portfolio risk or with flat premium deposit insurance deposit regulation rate regulation or deposit limits and direct asset restrictions are complementary tools to improve welfare in an uninsured market with observable portfolio risk or with risk based insurance deposit regulation may be a sufficient instrument to improve welfare

inference using qualitative and quantitative information with an application to monetary policy i introduction there has been a revival of interest in the use of qualitative information in macroeconomic analysis recently an impetus for this revival is the apparent inability of modern statistical analyses that use only quantitative information to resolve significant macroeconomic controversies for example the direction of causality between money and output continues to be the subject of considerable debate the use of qualitative information in macroeconomic analysis has a long tradition mitchell 1927 and burns and mitchell 1946 use the descriptions in thorp s 1926 annals and several statistical series to identify the unobserved phase of the business cycle 1 in their chapters on the federal reserve friedman and schwartz 1963 use diaries policy records and monetary aggregates to identify the stance of monetary policy the essence of this traditional method is that it is prudent to use both qualitative and quantitative information in the process of inference because of the potential gain in confidence associated with cross verification both types of information are needed to identify the asymmetries and nonlinearities that are characteristic of business cycles policy initiatives and other economic phenomena questions concerning the interpretation of results using qualitative information however have been raised 2 a source of unease is the difficulty of assessing a researcher s distillation of the information in descriptive materials no obvious metric for evaluating the coding of a qualitative variable exists i present an alternative framework for combining qualitative and quantitative information in order to draw inferences of an unobservable variable quantitative information is an observable time series variable qualitative information is an indicator variable coded by a researcher that reflects the distillation of literary materials motivated by the traditional method i consider the case where both types of observable information are imperfect representations of an unobserved state variable an iterative algorithm that uses quantitative and qualitative information to draw inferences of the unobservable variable is constructed the algorithm produces an inference of the unobservable state variable for each sample period using the two types of information it also produces a probabilistic assessment of whether the qualitative indicator is a reliable indicator of the true unobserved state as discussed in more detail below this algorithm is closely related to those of cosslett and lee 1985 and hamilton 1989 the algorithm is applied to the problem of determining the stance of monetary policy a goal is to confront a problem that economic agents may actually face because of the secrecy surrounding the monetary policy process a description of that problem is how can observable information qualitative and quantitative be combined to infer the stance of monetary policy also can the reliability of the qualitative information or a distillation of it be measured i implement the algorithm using two prominent indicators of monetary policy the paper is organized as follows the alternative framework for using qualitative and quantitative information to draw inferences of an unobservable variable is presented in the next section the application to the problem of inferring the stance of monetary policy is presented in section iii in this section indicators of policy are introduced the model is estimated and the relationship between the dynamic conditional monetary policy inferences and an important forecaster of macroeconomic activity is explored section iv concludes ii an alternative framework for inference stochastic structure my alternative framework is based on a particular conception of the statistical model underlying the traditional method let y sub t denote a quantitative variable and i sub t denote a 0 1 qualitative variable

a time series cross section analysis of the determinants of australian trading bank loan deposit interest margins 1962 1981 abstract a theoretical model of the determination of trading bank interest margins based on the hedging theory of interest margin determination is tested on time series cross section data of australian trading banks generally the results are consistent with that theory that is there exists a stable non linear relationship between australian trading bank net loan deposit interest margins and measures of market power degree of absolute risk aversion and to interest rate uncertainty furthermore the shift from business sector to personal sector loan and deposit business is associated with increased bank interest margins

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

interest rates and bank risk taking abstract a recent line of research views the low interest rate environment of the early to mid 2000s as an element that triggered increased risk taking appetite of banks in search for yield this paper uses approximately 18000 annual observations on euro area banks over the period 2001 2008 and presents strong empirical evidence that low interest rates indeed increase bank risk taking substantially this result is robust across a number of different specifications that account inter alia for the potential endogeneity of interest rates and or the dynamics of bank risk notably among the banks of the large euro area countries this effect is less pronounced for french institutions which held on average a relatively low level of risk assets finally the distributional effects of interest rates on bank risk taking due to individual bank characteristics reveal that the impact of interest rates on risk assets is diminished for banks with higher equity capital and is amplified for banks with higher off balance sheet items

information in conflicts abstract we consider two player contests for a prize of common but uncertain value for settings where one player knows the value of the prize while the other only knows its prior distribution we give conditions for when the uninformed agent is ex ante strictly more likely to win the prize than is the informed agent in the special case of a lottery contest equilibrium expenditures are lower under asymmetric information than if either both agents are informed or neither agent is informed

information disclosure in contests a bayesian persuasion approach we examine optimal information disclosure through bayesian persuasion in a two player contest one contestant s valuation is commonly known and the other s is his private information the contest organiser can precommit to a signal to influence the uninformed contestant s belief about the informed contestant we show that to search for the optimal signal when the informed contestant s valuation follows a binary distribution it is without loss of generality to compare no disclosure with full disclosure otherwise such a restriction causes loss of generality we propose a simple method to compute the optimal signal which yields explicit solutions in some situations

discount window borrowing monetary policy and the post october 6 1979 federal reserve operating procedure abstract a demand schedule for discount window borrowing based on profit maximizing bank behavior is derived a feature of non price rationing at the discount window making longer duration borrowing more costly is shown to make lagged borrowing and expected future spreads between the federal funds rate and the discount rate relevant to the current borrowing decision consequently both the size of the coefficients in the borrowing functions as well as the form of the function itself depend on expected fed policy toward the spread the demand function for discount window borrowing provides the critical link by which non borrowed reserve control affects short term interest rates and ultimately the money supply under post october 6 1979 reserve targeting the analysis suggests some reasons why the fed has experienced difficulty in specifying estimating and utilizing a discount window borrowing function in the non borrowed reserve operating procedure

conducting monetary policy at very low short term interest rates can monetary policy committees accustomed to describing their plans and actions in terms of the level of a short term nominal interest rate find effective means of conducting and communicating their policies when that rate is zero or close to zero the very low levels of interest rates in japan switzerland and the united states in recent years have stimulated much interesting research on this question and have led some central banks to make changes in their operating procedures and communications strategies in this paper we will give a brief overview of current thinking on the conduct of monetary policy when short term interest rates are very low or even zero monetary policy works for the most part by influencing the prices and yields of financial assets which in turn affect economic decisions and thus the evolution of the economy when the short term policy rate is at or near zero the conventional means of effecting monetary ease lowering the target for the policy rate is no longer feasible however it would be a mistake to think that monetary policy was impotent we discuss three strategies for stimulating the economy at an unchanged level of the policy rate these involve i providing assurance to investors that short rates will be kept lower in the future than they currently expect ii changing the relative supplies of securities in the marketplace by altering the composition of the central bank s balance sheet and iii increasing the size of the central bank s balance sheet beyond the level needed to set the short term policy rate at zero quantitative easing we also discuss the costs and benefits of very low interest rates an issue that bears on the question of whether the central bank should take the policy rate all the way to zero before undertaking alternative policies

the relation between narrative and money market indicators of monetary policy this paper studies the relation between narrative based indicators of monetary policy and widely used money market indicators of monetary policy three principal findings emerge first changes in monetary policy as measured by the narrative based policy indices are associated with persistent changes in the levels of m2 and the monetary base in contrast changes in the narrative policy indicators lead to transitory changes in short term interest rates nonborrowed reserves and the spread between the six month commercial paper rate and the three month treasury bill rate third these findings are generally robust across different narrative based policy indices

efficiency in the savings and loan industry abstract the stochastic econometric cost frontier approach is modified to investigate efficiency in mutual and stock s ls using 1991 data on u s s ls this methodology allows both the cost frontier and error structures to differ between s ls of these two ownership forms a likelihood ratio test indicates that the data support this unrestricted model which implies efficient mutual and stock s ls use different production technologies various measures of inefficiency show that on average stock s ls are less efficient than mutual s ls the second part of the article relates the inefficiency measures to several correlates

inflation employment and monetary policy objectives and outcomes in the uk and u s compared this paper explores how sensitive is monetary policy to the precise preferences of the central bank over inflation and economic activity it does so in order to address a puzzle which is that the u s fed and the bank of england appear to have quite different objectives and yet have adopted strikingly similar policies in recent years i use a calibrated model to assess how policy might be sensitive to attaching different weights to inflation output and the output gap in central bank objectives i find that a wide range of weights can give rise to rather similar monetary policies

common value contests with asymmetric information abstract we consider two player perfectly discriminatory common value contests or all pay auctions in which one player knows the value of the contested object with certainty and the other knows only its prior distribution we show among other things that in equilibrium the players win with equal probability this contrasts with a large class of imperfectly discriminatory contests in which the uninformed player wins with a strictly greater probability than the informed player

bank competition and financial stability in asia pacific the impact of bank competition on financial stability has been a focus of academic and policy debate over the last two decades and particularly since the 2007 08 global financial crises beck 2008 oecd 2011 under the traditional competition fragility view banks cannot earn monopoly rents in competitive markets and this results in lower profits capital ratios and charter values this makes banks less able to withstand demand or supply side shocks and encourages excessive risk taking marcus 1984 alternatively the competition stability view suggests that competition leads to greater stability a less competitive banking market may lead to more risk taking if the big banks are deemed too important to fail and as such obtain implicit or explicit subsidies via government safety nets mishkin 1999 in addition banks with more market power tend to charge higher loan rates which may induce borrowers to assume greater risk leading to greater default in competitive banking markets loan rates are lower too big to fail issues and safety net subsidies are smaller and this results in a positive link between bank competition and stability boyd and de nicolo 2005 it could also be the case as noted by martinez miera and repullo 2010 that bank competition and stability are linked in a non linear manner and in a similar vein berger et al 2009 argue that competition and concentration may coexist and can simultaneously induce stability or fragility

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

bank income structure and risk an empirical analysis of european banks the purpose of this paper is to investigate the relationship between bank risk and product diversification in the changing structure of the european banking industry based on a broad set of european banks for the period 1996 2002 our study first shows that banks expanding into non interest income activities present higher risk and higher insolvency risk than banks which mainly supply loans however considering size effects and splitting non interest activities into both trading activities and commission and fee activities we show that the positive link with risk is mostly accurate for small banks and essentially driven by commission and fee activities a higher share of trading activities is never associated with higher risk and for small banks it implies in some cases lower asset and default risks

unconventional monetary policy and bank risk taking abstract we analyze the presence of bank risk taking associated with unconventional monetary policy in the united states between 2008 and 2015 using corporate syndicated loan data at the bank firm level we measure monetary policy using the identification through heteroskedasticity approach with a var model to identify the risk taking channel we control for time varying heterogeneity in credit demand and supply our results indicate that accommodating monetary conditions are associated with overall lower loan spreads however the spread reduction is lower for riskier firms suggesting that there is no risk taking behavior in the syndicated loan market during the ump period

macroprudential policy central banks and financial stability evidence from china abstract we study the chinese experience and provide evidence that central banks can play an active role in safeguarding financial stability the narrative approach is used to disentangle macropudential policy actions from monetary actions we show that reserve requirements window guidance supervisory pressure and housing market policies can be used for macroprudential purposes our var estimates suggest that well targeted macroprudential policy has immediate and persistent impact on credit but no statistically significant impact on output macroprudential policy can be used to retain financial stability without triggering an economic slowdown or as a complement to monetary policy to offset the buildup of financial vulnerabilities arising from monetary easing a well designed mix of these two policies helps to achieve both macroeconomic and financial stability objectives which however requires central banks to maintain a multi instrument framework

information sharing in a contest game with group identity abstract in this paper we study a private information contest game with two stages in stage 1 players simultaneously choose whether to announce their group identity and in stage 2 each player simultaneously plays a within group lottery contest and an across group contest players information sharing incentives are analyzed and all symmetric equilibria of the game are fully characterized our results show that 1 full disclosure by both types is always one of the equilibria 2 full concealment by both types can be supported as an equilibrium information strategy when the relative magnitude of high and low valuations is large and when such a relative magnitude is small there is an equilibrium in which the high type randomizes and the low type fully conceals

price pressure in the government bond market what determines the term structure of interest rates standard economic theory links the interest rate for maturity t to the willingness of a representative agent to substitute consumption between times 0 and t the standard model contrasts sharply with a more informal view based on investors preferred habitat proposed by john culbertson 1957 and franco modigliani and richard sutch 1966 according to the preferred habitat view there are investor clienteles with preferences for specific maturities and the interest rate for a given maturity is influenced by the demand of the corresponding clientele and the supply of bonds with that maturity for example the typical clientele for long term bonds are pension funds an increase in their demand would be expected to raise prices of long term bonds and thus lower long term interest rates in short preferred habitat implies that there is price pressure in the bond market while the preferred habitat view has intuitive appeal it has not entered into the academic mainstream typically being relegated to a paragraph in mba level textbooks one reason for this is the mixed findings in early empirical studies of the term structure specifically between 1962 and 1964 the us treasury and federal reserve raised the supply of short term government debt while simultaneously lowering the supply of long term debt this program known as operation twist aimed to raise shortterm interest rates and so improve the balance of payments while also lowering long term rates to stimulate private investment a number of papers evaluated operation twist and while they reached different conclusions none found strong evidence that the operation was effective in flattening the term structure e g modigliani price pressure in the government bond market

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

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

regional income fluctuations common trends and common cycles this paper investigates trend and cycle dynamics in per capita income for the major u s regions during the 1956 1995 period cointegration and serial correlation common features information are used in jointly decomposing the series into trend and cycle components we find considerable differences in the volatility of regional cycles controlling for differences in volatility we find a great deal of comovement in the cyclical response for all regions but the far west possible sources underlying differences in regional cycles are explored such as the share of a region s income accounted for by manufacturing defense spending as a proportion of a region s income oil price shocks and the stance of monetary policy somewhat surprisingly we find that the share of manufacturing in a region seems to account for little of the variation in regional cycles relative to national cycles but manufacturing share differentially affects trend growth for four of the seven regions studied

market discipline and deposit insurance cross country evidence presented in this paper suggests that explicit deposit insurance reduces required deposit interest rates while at the same time it lowers market discipline on bank risk taking internationally deposit insurance schemes vary widely in their coverage funding and management this reflects that there are widely differing views on how deposit insurance should optimally be structured to inform this debate we use a newly constructed data set of deposit insurance design features to examine how different design features affect deposit interest rates and market discipline

market interest rates and commercial bank profitability an empirical investigation the widespread notion that commercial banks borrow short and lend long implies that sharp market interest rate increases may induce a significant number of banking failures this paper develops a method for estimating average asset and liability maturities for a sample of large money center banks regression models are tested to determine if market rate fluctuations have a significant impact on bank profitability the conclusion is negative large banks have effectively hedged themselves against market rate risk by assembling asset and liability portfolios with similar average maturities the impact of market interest rates on commercial bank revenues costs and profitability has increasingly concerned economists and policymakers as financial market conditions have become more volatile in recent years the widespread notion that depository intermediaries borrow short and lend long implies that rapid market rate increases may induce an unacceptable number of financial firm failures monetary policy discussions have reflected this concern for many years the federal reserve board considered stable market rates a goal or at least an intermediate target of monetary policy the extent to which money market conditions are permitted to fluctuate in the short run is also affected by the unique role of the federal reserve system as the nation s lender of last resort liquidity pressures ultimately devolve on the money market and the federal reserve has a responsibility for maintaining orderly conditions in that market

private sector influences on monetary policy in the united states i examine the extent to which the federal reserve s monetary policy actions are correlated with the expressed wishes of private sector lobbying groups i update and extend work by havrilesky 1990 1993 regarding the effect of signals from the banking industry through the federal advisory council fac i also construct a new database containing statements from non financial interest groups i find that monetary policy actions are correlated with signals from non financial groups before 1979 but not after and are correlated with signals from the fac after 1979 but not before i also find that the fed s policy stance more closely matches the preferred stance of the banking industry after 1979

effort levels in a cournot nash contest with asymmetric information abstract many contests exist where one player does not know his opponent s value of a fixed prize e g unobservable non market preferences for preservation this paper explores how changes in the nature of a one sided information asymmetry affect effort levels in a cournot nash contest the results indicate that the uninformed player s effort is an uncertain input such that his effort is inversely related to risk this reduces his average odds of success comparative static results are driven by the perceived odds of success and risk for the uninformed player and the actual odds of success for the informed player

monetary policy announcements and market interest rates response evidence from china abstract this paper examines the daily responses of market interest rates to three monetary policy announcements in china using the event study approach i find that the interest rate responses to announced changes in the regulated retail interest rate and the required reserve ratio are positive and significant at all maturities of interest rates but smaller at the long end of the yield curve by contrast market interest rates barely respond to the qualitative mpc announcements about the monetary policy stance these findings are robust to alternative econometric methods that correct for potential bias arising from violations of the identification assumption these findings suggest that the pbc should formulate its policy communication in a quantitative way

financial deregulation and total factor productivity change an empirical study of turkish commercial banks abstract in january 1980 a new liberal economic policy was adopted in turkey to promote financial market development and increase the efficiency and productivity of the financial sector by fostering competition among banks as a result of this policy the turkish banking system witnessed a series of legal structural and institutional changes throughout the 1980s to enhance their competitive viability turkish banks responded by streamlining their operations and investing in new technology utilizing a dea type malmquist total factor productivity change index we examine productivity growth efficiency change and technical progress in turkish commercial banks during the deregulation of financial markets in turkey we found that all forms of turkish banks although in different magnitudes have recorded significant productivity gains driven mostly by efficiency increases rather than technical progress efficiency increases however were mostly owing to improved resource management practices rather than improved scales our results also indicate that private banks began to close their performance gap with public banks in the new environment

does deposit insurance improve financial intermediation evidence from the russian experiment this study examines how the introduction of deposit insurance affects depositors and banks using the deposit insurance scheme introduced into the russian banking system as a natural experiment the fundamental research question is whether the introduction of deposit insurance leads to a more effective banking system as evidenced by increased deposit taking and decreased reliance upon state owned banks as custodians of retail deposits we find that banks entering the new deposit insurance system increase both their level of retail deposits and their ratios of retail deposits to total assets relative to banks that do not enter the new deposit insurance system these results hold up in a multivariate panel data analysis that controls for bank and time random effects the longer a bank has been entered into the deposit insurance system the greater is its level of deposits and its ratio of deposits to assets moreover this effect is stronger for regional banks and for smaller banks we also find that implementation of the new deposit insurance system has the effect of leveling the playing field between state owned banks and privately owned banks finally we find strong evidence of moral hazard following implementation of deposit insurance in the form of increased bank risk taking financial risk and to a lesser degree operating risk increase following implementation

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

portfolio mix and large bank profitability in the usa the us banking system has just emerged from a troublesome period with many institutions struggling for survival we examine large commercial banks during the latter part of the 1980s to determine what factors affected bank profitability using both cross section and pooled time series cross section regressions our conclusions are that large banks experienced poor performance because of a declining quality of the loan portfolio real estate loans generally have a negative effect on large bank profitability although not at high levels of significance construction and land development loans the exception have a strong positive effect

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