idiosyncratic and common shocks to investment decisions this paper shows how microeconomic data on investment plans can be used to study the structure of risk faced by firms revisions of investment plans form a martingale and thus reveal the underlying shocks driving investment we decompose revisions in investment plans into micro sector and aggregate shocks and exploit stock market data to distinguish between structural valuerelated shocks and measurement error in investment revisions using panel data for us firms we find that microshocks are not the dominant source of risk in investment decisions and that much of the observed microvariation is actually due to heterogeneity in firm level responses to aggregate shocks firms are able to diversify most idiosyncratic investment risk and they do not appear to be liquidity constrained

the regional financial sector a scottish case study dow s c 1992 the regional financial sector a scottish case study reg studies 26 619 631 the regional finance literature suggests that financial market segmentation may affect regional economic activity but that the uk financial sector is sufficiently integrated to rule out this effect this paper attempts to broaden the scope of the debate by considering the credit creating behaviour of the banking sector together with the interdependent financial behaviour of all other sectors in a region it is concluded that financial behaviour in this broad sense affects regional activity even in an integrated national financial market in particular financial integration may adversely affect the allocation of new credit to a peripheral region the argument is assessed by considering the scottish case dow s c 1992 le secteur financier regional cas d etude de l ecosse reg studies 26 619 631 la documentation relative au secteur financier regional laisse supposer que la segmentation du marche finan

fiscal discriminations in three wars in 1790 a u s paper dollar was widely held in disrepute something shoddy was not worth a continental by 1879 a u s paper dollar had become as good as gold these outcomes emerged from how the u s federal government financed three wars the american revolution the war of 1812 and the civil war in the beginning the u s government discriminated greatly in the returns it paid to different classes of creditors but that pattern of discrimination diminished over time in ways that eventually rehabilitated the reputation of federal paper money as a store of value

stationary pareto optimality of stochastic asset equilibria with overlapping generations abstract a way of establishing the stationary pareto optimality of asset equilibria in stochastic settings with age diversity among the agents is suggested difficulties in obtaining such results arise because agents behavior is affected by random future state variables while pareto optimality defined in terms of expected lifetime utility of representative agents conditioned on their first period state involves redistributions of consumption among agents with different histories of realized states frobenius theorem is used to establish the existence of weights for which the so weighted sum of representative agents conditional expected utilities is maximized at the asset equilibrium allocation

uncertainty and the neutrality of government financing policy abstract some ideas from the theory of finance are applied to consider whether debt financed tax cuts affect desired consumption it is shown that government financing policy is a matter of indifference to infinitely lived households if a perfect substitute for public debt exists the analysis allows for uncertainty about future taxes and for missing markets in some kinds of assets income redistribution risk and the public insurance aspects of an income tax scheme qualify this neutrality result but in general the net effect is ambiguous the real resource costs of financial transacting as well as government superiority in the intermediation process may be one rationale for activist debt management policy a better understanding of functioning capital markets is essential to evaluate these arguments

the regional transmission of uk monetary policy dow s c and montagnoli a 2007 the regional transmission of uk monetary policy regional studies 41 797 808 concerns have been raised in the media about a one size fits all monetary policy for the uk if there are diverse economic conditions in different regions then a unitary monetary policy cannot suit all the purpose of this paper is to explore this issue further by breaking it down into two separate issues first there is the more conventional way of considering the question in terms of the effect of a particular interest rate change on regions experiencing different economic conditions this requires a consideration of the nature and causes of regional economic disparities in the uk and how these might be affected by particular interest rate changes but there is further the question of how monetary policy is transmitted to the different regions the possibility is considered that there may be regional differences in how a particular monetary policy is translated into different financial

financial hierarchy and banking strategies a regional analysis for the brazilian case the aim of this paper is to investigate whether brazil s financial system has a differentiated strategy in space the analysis is based on the theory of liquidity preference regionally differentiated in addition it assumes that the banking strategies are associated with centrality as defined in christaller s central place theory the analysis used indicators of 2 924 cities grouped according to the type of financial services they provide in addition the paper presents an estimation using a dynamic panel data econometric model for the period 2000 08 in order to test if the banking strategies are related to the centrality of the cities

bank regulation as an antidote to price level instability abstract we use an overlapping generations model with a risky storage technology to describe a new type of sunspot equilibrium characterized by excessive price level volatility and overinvestment in stored goods the features of this equilibrium lead us to interpret it as involving speculation and as arising when banks create excessive quantities of money this interpretation provides welfare justification for imposing quantity limits on the bank money stock we argue that the monetary regime established in england under peel s act imposed such a quantity limit our findings support quantity theorists traditional view that the possibility of overissue provides a rationale for bank regulation

financial services and the urban system an exploration financial services have come to represent an increasingly important sector in the economies of developed nations although a substantial literature has accumulated on this topic relatively little attention has been given to the locational aspects of nancial services an attempt is made here to examine the spatial structure of this sector in terms of the urban system drawing on the principles of central place theory the limitations and applicability of which are considered this is followed by a discussion of the salient features of financial services within the overall urban system after describing the differentiation of financial services in frequency terms the hierarchical structure of the uk urban system is outlined these two aspects are then related in order to demonstrate the ordered nature of the spatial structure of financial services there follows a brief discussion of the findings and their implications for future work

indexing and inflation abstract much of the opposition to indexation as a means of adapting to ongoing inflation arises from the view that indexation is itself inflationary this paper examines the basic for that view in a simple macroeconomic model in which budget deficits are in part financed through the printing of money it is shown that all aspects of indexing wage indexation bond indexation and tax indexation tend to increase the impact on the price level of any inflationary shock however this association between indexation and inflation is in large part a consequence of the monetary and fiscal policies being followed by the government evidence from a cross section of forty countries on the effects of indexation on the inflationary impact of the oil price shock of 1973 1974 suggests that indexation did not in general increase the inflationary impact of the oil shock the evidence is further consistent with the view that the absence of an excess inflationary effect of indexation is a result of the countries with substantial indexation not having accommodated the oil price shock as much as other countries

allocative effects of financial assets and the long run neutrality of money when markets are incomplete abstract we analyze the allocative role of money as a numeraire in an intertemporal general equilibrium model with incomplete financial markets and nominal financial instruments it is shown that regardless of their return specification nominal assets in net supply increase the consumption risk and trigger an endogenous monetary process which diminishes the influence of these assets on the equilibrium allocation through time the nonneutrality of money claimed in the recent literature is a temporary phenomenon only asymptotically the traditional neutrality theorems are valid

assets general equilibrium and the neutrality of money when government liabilities including money are held in private portfolios only as stores of value and do not provide additional services such as liquidity real variables are not affected by changes in the money supply due to the government s trading in real assets open market operations this neutrality of monetary policy fails if the government either trades in nominal assets or it distributes subsidies and levies taxes the ability of monetary policy to affect real variables is an important issue and has been the subject of numerous theoretical and empirical studies the most useful theoretical framework within which to address the problem is a model of asset markets where the demand for money or other government liabilities is determined by rational portfolio choice tobin 1958 these assets may of course provide additional services such as transactions and liquidity we assume here however that these services do not exist the standard argument for the effectiveness of monetary policy goes as follows changes in the supply of money affect the price level and hence the distribution of returns to money as an asset as individuals realign their portfolios and prices adjust to maintain market clearing the equilibrium holdings of physical assets change in this case money is not neutral we shall argue however that as long as changes in the supply of money are effected through the government s trading in real assets this argument is in general not valid it is well known that the effectiveness of monetary policy depends on the method of injection of new money into the economy two procedures are used by the government to effect changes in the supply of money it either trades in assets nominal or real open market operations or it distributes subsidies and levies taxes we show here that open market operations in real assets capital or indexed bonds have no effects on real variables in a general equilibrium model with market clearing the argument which can also be applied to the management of the public debt is presented in a most general framework in the next section it does not depend on the existence of a complete system of contingent securities or on an operative bequest motive furthermore it is compatible with incomplete and differential information the result is similar to the modigliani miller theorem in corporate finance that an argument along these lines can be employed to demonstrate the irrelevance of open

banks and regional development an empirical analysis on the determinants of credit availability in brazilian regions crocco m faria silva f paulo rezende l and rodriguez fuentes c j banks and regional development an empirical analysis on the determinants of credit availability in brazilian regions regional studies this paper studies the influence that liquidity preference and bank lending strategies might have played in the determination of bank credit availability in brazilian regions during the period 1999 2008 it puts forward the argument that in remoter and less developed regions the liquidity preference of agents is higher and fluctuates along business cycles reducing regional credit availability in downturns due to both a contraction in supply and the demand for credit in remoter regions and producing a more unstable pattern for credit availability alongside business cycles empirical evidence for the brazilian regions during the period 1999 2008 is provided to support this view

inflation and unemployment the world economy today is vastly different from the 1930s when seymour harris the chairman of this meeting infected me with his boundless enthusiasm for economics and his steadfast confidence in its capacity for good works economics is very different too both the science and its subject have changed and for the better since world war ii but there are some notable constants unemployment and inflation still preoccupy and perplex economists statesmen journalists housewives and everyone else the connection between them is the principal domestic economic burden of presidents and prime ministers and the major area of controversy and ignorance in macroeconomics i have chosen to review economic thought on this topic on this occasion partly because of its inevitable timeliness partly because of a personal interest reaching back to my first published work in 1941

the application of development economics general principles and context specificity the purpose of this paper is to consider the application of development economics at the methodological level in particular given the shortcomings of both the modernist and postmodernist approaches to development policy we consider an alternative approach drawing on critical realism which combines the benefits of generality with the benefits of attention to specificity of context the approach is illustrated by showing how principles in development economics addressing issues of globalisation and peripherality can serve to illuminate some of the causal tendencies at work in a developed economy such as scotland copyright 2005 oxford university press

risk sharing between and within families this paper uses the panel study of income dynamics to test whether risk sharing is complete between or within american families the tests accommodate a wide variety in the configuration and availability of family data the test results reject inter as well as intra family full risk sharing even assuming that leisure is endogenous or that leisure and consumption are nonseparable

the growth and geographical anatomy of venture capitalism in the united kingdom martin r l 1989 the growth and geographical anatomy of venture capitalism in the united kingdom reg studies 23 389 403 the 1980s have seen the emergence and rapid growth of venture capitalism in the uk this paper examines this growth both in terms of the spatial organization of the venture capital industry and the regional distribution of venture capital investment the picture that emerges is of an industry which is over centralized in the london area and which in the course of its recent development has tended to concentrate investment in the already more prosperous southeastern and adjacent parts of the country while local venture capital markets are beginning to become established in northern britain it will be some time before the existing regional imbalance is likely to be redressed martin r l 1989 la croissance et la distribution geographique du capital risque au royaume uni reg studies 23 389 403 les annees 1980 ont temoigne de la naissance et de l essor du capital risque au

why do we have nominal government debt abstract we study the choice between nominal and indexed debt in a stochastic macroeconomic model with discretionary monetary and fiscal policy with distortionary taxes nominal debt provides valuable insurance against the budgetary effects of economic fluctuations we show that a welfare maximizing government always issues some nominal debt even though nominal debt increases inflation along the time consistent path of the economy the result is fairly robust with respect to changes in assumptions about policy constraints and about the macroeconomic setting

stochastic inflation and government provision of indexed bonds abstract this paper examines the consequences of using indexed bonds as one of the government financing instruments along with money and taxes it is shown that open market operations between money and indexed bonds do not matter in a real sense despite their different risk characteristics increasing the share of indexed bonds in the government portfolio increases the volatility and the conditional mean of real rates of return on money when provided by means other than open market operations indexed bonds can affect the allocation of resources but these reallocations cannot be pareto improving

the sensitivity of consumption to transitory income estimates from panel data on households we investigate the stochastic relation between income and consumption specifically consumption of food within a panel of about 2 000 households our major findings are 1 consumption responds much more strongly to permanent than to transitory movements of income 2 the response to transitory income is nonetheless clearly positive 3 a simple test independent of our model of consumption rejects a central implication of the pure life cycle permanent income hypothesis the observed covariation of income and consumption is compatible with pure life cycle permanent income behavior on the part of80 percent of families and simple proportionality of consumption and income among the remaining 20 percent as a general matter our findings support the view that families respond differently to different sources of income variations in particular temporary income tax policies have smaller effects on consumption than do other more permanent changes in income of the same magnitude this abstract was borrowed from another version of this item

on the denomination of government debt a critique of the portfolio balance approach abstract we show that some classes of sterilized interventions have no effect on equilibrium prices and quantities the proof does not require complete markets ricardian equivalence monetary neutrality or the law of one price moreover regressions of exchange rates or interest differentials on variables measuring debt s currency composition contain no information about the affectiveness of such interventions other interventions require changes in monetary and fiscal policy their effects depend generally on the influence of these changes on the economy and not on the intervention alone in short sterilized intervention is not as the portfolio balance approach indicates an extra policy instrument

irrelevance of open market operations in some economies with government currency being dominated in rate of return this paper describes an environment in which government issued currency is dominated in rate of return and in which there obtains a modigliani miller theorem for government open market operations earlier modigliani miller theorems for government finance have been stated for environments in which government issued currency is not dominated in rate of return in equilibrium since government issued currency is widely observed to be dominated in return it is useful to study how modigliani miller theorems hinge on absence of rate of return dominance

household choices in equilibrium this paper is an empirical investigation of equilibrium restrictions on household consumption and male labor supply it exploits a simple factor structure rationalized by two assumptions that household allocations are pareto optimal and that the labor market is competitive the paper estimates household preferences and tests how well this parsimonious factor structure represents panel data on married couples and time series data on asset returns most of the estimates are roughly comparable to those found in previous work no evidence against the simple factor representation is found and the intertemporal capital asset pricing model is not rejected copyright 1990 by the econometric society

regional financial sector models an application to the northern ireland financial sector hutchinson r w and mckillop d g 1990 regional financial sector models an application to the northern ireland financial sector reg studies 24 421 431 this paper presents an analysis of recent theoretical developments in the treatment of regional financial markets it starts from a position where regional financial markets are fully integrated in a national system with regional financial institutions having a neutral effect on their regional economy it then indicates how interregional differences in information costs can result in a degree of inter regional financial market segmentation creating conditions under which regional interest rates can diverge from national rates the theoretical analysis also demonstrates how market segmentation resulting from financial institutions with elements of regional autonomy can impact upon a region s ability to undertake profitable investment the applicability of these models is then tested employing the northern ireland financial sector as the control

critical survey the new geographical turn in economics some critical reflections over the past few years a new geographical economics has emerged focused on the spatial agglomeration of industry and the long run convergence of regional incomes several leading names are associated with this geographical turn including paul krugman michael porter robert barro and w brian arthur this new economic geography it is argued here is neither that new nor is it geography instead it is a reworking or re invention using recent developments in formal mathematical mainstream economics of traditional location theory and regional science as such it is quite opposed to and difficult to reconcile with the work on regional development and industrial agglomeration being carried out in economic geography proper

the regional impact of the small firms loan guarantee scheme in the united kingdom harrison r t and mason c m 1986 the regional impact of the small firms loan guarantee scheme in the united kingdom reg studies 20 535 550 the small business loan guarantee scheme was introduced in the uk in 1981 in response to long standing concern about the problems encountered by small businesses in raising external finance although the scheme was introduced nationally its impact has varied among regions not unexpectedly the south east and east anglia account for the largest proportion of guarantees both by number and by value of loans this lends superficial support to the argument that nationally oriented small firms policies may actually contradict the aims of regional policy however this conclusion must be qualified in the light of the evidence once each region s share of the total stock of businesses is taken into account certain peripheral regions notably the north west join the south east east anglia region as having more than their expected share of loan guarantees evidence p

private saving and public debt a review essay private saving and public debt edited by m j boskin and s gorini basil blackwell oxford u k 1987 and based on the proceedings of a conference held in italy in 1985 is a well documented policy oriented guide to the analysis of recent fiscal developments several strands of research are represented in the volume some contributions provide a description of empirical and institutional facts while others analyze the theoretical foundations of different aspects of the public debt problem its impact on financial markets its connection with private saving behavior its international repercussions its effects on inflation and tax policy a unifying theme in the debate is an attempt to shift the focus of the analysis away from the keynesian emphasis on short run finetuning and towards a long run growth oriented perspective the most important issues addressed in the volume are the sustainability of public debt and the effects of government deficits on private saving

the dynamics of inflation with constant deficit under expected regime change a model that describes the dynamics of inflation with a fully anticipated stabilization program is developed it is shown that with a constant deficit an economy tends to stay at the neighborhood of the lower of the two state inflation rates that are compatible with the deficit further increasing inflation rates prior to the stabilization are compatible only with deficits that are lower than the maximal feasible staedy state deficits and with a stabilization program that reduces the demand for real balances if these conditions are not met inflation decreases towards the stabilization date it is argued that the data generated by actual inflationary episodes fit the conditions described above and corroborate the model this abstract was borrowed from another version of this item this abstract was borrowed from another version of this item

inventories and the propagation of sectoral shocks this paper contrasts the dynamic properties of an imperfectly competitive economy with a representative agent real business cycle model for both economies inventories are the important dynamic linkage the predictions of these models with regards to the comovement of employment across sectors may differ empirical evidence on the comovement of employment over the business cycle is consistent with the model of imperfect competition with inventory holdings copyright 1990 by american economic association

regional determinants of small firm loans under the u k loan guarantee scheme the loan guarantee scheme was initiated in 1981 in order to alleviate a perceived constraint in the ability of small firms to secure bank finance due to a lack of collateral this paper shows that a national small firms support scheme has at the point of delivery had quite different coverage across regions briefly the initial evidence suggests that the northern regions of england have been the major net beneficiaries of the scheme primarily at the expense of northern ireland and scotland further analysis identified house prices as the single most important determinant of loan size acting via a collateral effect on loan numbers and value fixed regional effects were dominant particularly in the south east and north west

informational diversity over time and the optimality of monetary equilibria abstract the temporal realizations of a random state variable in an overlapping generations model create an informational diversity between members of different generations and require a reexamination of the optimality that competitive equilibria might display in such an environment using an optimality criterion that reflects this informational diversity we prove the optimality of competitive equilibrium in a model with a fixed stock of fiat money a single spot market and good endowments that follow a markov process the need for an optimality criterion that incorporates informational diversity is further motivated by studying the same model with the operation of complete contingent commodities markets

long and short term interest rates in a risky world abstract the paper develops and tests a general equilibrium model in which variability or risk affects the choice of portfolios our measures of variability include only the variability of unanticipated growth in monetary and non monetary aggregates and our tests use data ending with the change in federal reserve procedures in october 1979 we find that increased variability of unanticipated money growth raises demands for debt and money and reduces the demand for real capital interest rates on both short and long term debt rise by a risk premium we estimate the size of the risk premium before and after the october 1979 change and we show that the change in federal reserve procedures moved the economy to a less efficient point

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

safe debt risky capital the author extends the diamond 1965 model of national debt in two directions she first introduces technological uncertainty and then she allows the stock of debt to vary the author studies the dynamical equilibria of the resulting stochastic system and she establishes conditions for the existence of stationary states that are expressed in terms of invariant distributions since conditions that ensure the existence of a stochastic stationary state with positive debt are very restrictive in this model financial instability is a pervasive phenomenon and allocations are in general dynamically inefficient copyright 1994 by the london school of economics and political science