on measuring the nearness of near moneys revisited abstract in this paper we re examine the theoretical foundations and empirical estimation of models which incorporate a ces utility function to study the nearness of money substitutes we show that previous studies using these models have been subject to a number of theoretical and empirical flaws the result of these flaws has been to overestimate the degree of substitutability between money and near money assets we show that when these errors are corrected estimates of substitution elasticities are several times smaller than even those of the most recent studies and therefore are more in line with estimates from more traditional demand for money studies

retrospectives the law of diminishing returns from introductory economics to theoretical papers the law of diminishing returns is a part of every economist s tool kit but the evolution of this law in the history of economic analysis reveals more complexity than is perhaps generally understood even among those most responsible for its evolution the law has been loosely defined and many so called proofs of the law have been weak and incomplete moreover those who expounded the law and its economic implications rarely offered empirical evidence to support it in fact economists have offered alternative explanations for rising short run marginal cost curves and other implications of the law of diminishing returns this last point raises an interesting question have economists used the law of diminishing returns simply for convenience or is the law fundamental to economic analysis

expanding credit access using randomized supply decisions to estimate the impacts expanding access to commercial credit is a key ingredient of financial development strategies there is less consensus on whether expanding access to consumer credit helps borrowers particularly when loans are extended at high interest rates popular skepticism about unproductive usurious lending is fueled by research highlighting behavioral biases that may induce overborrowing we estimate the impacts of expanding access to consumer credit at a 200 annual percentage rate apr using a field experiment and follow up data collection the randomly assigned marginal loans produced significant net benefits for borrowers across a wide range of outcomes there is also some evidence that the loans were profitable the author 2009 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oxfordjournals org oxford university press

modeling loss aversion and reference dependence effects on brand choice based upon a recently developed multiattribute generalization of prospect theory s value function tversky and kahneman 1991 we argue that consumer choice is influenced by the position of brands relative to multiattribute reference points and that consumers weigh losses from a reference point more than equivalent sized gains loss aversion we sketch implications of this model for understanding brand choice we develop a multinomial logit formulation of a reference dependent choice model calibrating it using scanner data in addition to providing better fit in both estimation and forecast periods than a standard multinomial logit model the model s coefficients demonstrate significant loss aversion as hypothesized we also discuss the implications of a reference dependent view of consumer choice for modeling brand choice demonstrate that loss aversion can account for asymmetric responses to changes in product characteristics and examine other implications for competitive strategy

do interest rates matter credit demand in the dhaka slums abstract best practice in microfinance holds that interest rates should be set at profit making levels based on the belief that even poor customers favor access to finance over low fees despite this core belief little direct evidence exists on the price elasticity of credit demand in poor communities we examine increases in the interest rate on microfinance loans in the slums of dhaka bangladesh using unanticipated between branch variation in prices we estimate interest elasticities from 0 73 to 1 04 with our preferred estimate being at the upper end of this range interest income earned from most borrowers fell but interest income earned from the largest increased generating overall profitability at the branch level

portfolio redistribution impacts within the narrow monetary aggregate a number of important monetary and financial changes occurred in the 1980s a rising question among monetary economists is whether the character of m1 has changed substantially as a result in particular a frequent contention is that interest bearing checkable deposits behave as a savings type asset thus subjecting m1 to portfolio redistribution effects in the modern era this research examines the elasticities of substitution for a variety of financial assets pre and post 1980 results indicate that m1 subcomponents do show significant substitution with savings type assets however the portfolio redistribution impacts are not confined to the interest bearing checkable deposits further results indicate that this behavior is not unique to the 1980s copyright 1992 by ohio state university press

currency substitution and the demand for money some evidence for canada recently the possibility that foreign and domestic currencies are substitutes has received considerable attention see 1 2 3 10 19 21 currency substitution has important implications for the working of flexible exchange rates if the degree of currency substitution is high small changes in the money supply would induce large changes in the exchange rate furthermore currency substitution would transmit the effect of monetary disturbances from one country to another indeed significant currency substitution would seriously undermine the ability of flexible exchange rates to provide monetary independence this paper examines the empirical importance of currency substitution in the framework of the demand function for money if currency substitution is important the expected change in the exchange rate should be a significant determinant of the demand for home currency in section 2 we undertake such a test for the canadian demand for money during the recent flexible exchange rate period there is considerable evidence that the forward exchange rate is a good measure of the expected exchange rate our own tests confirm these results for canadian data since 1970

the return to capital in ghana we show that the real return to capital in ghana s informal sector is high for farmers we find annual returns ranging from 205 350 in the new technology of pineapple cultivation and 30 50 in well established food crop cultivation we also examine the relative prices of durable goods of varying durability and estimate a lower bound to the opportunity cost of capital of 60 this abstract was borrowed from another version of this item

consumer credit evidence from italian micro data in this paper we analyse unique data on credit applications received by the leading provider of consumer credit in italy findomestic the data set covers a five year period 1995 1999 during which the consumer credit market rapidly expanded in italy and a new law the usury law came into force that set a limit on interest rates charged to consumers we compute behavioural changes by controlling for changes in the observable characteristics of the findomestic clientele and argue that under suitable identifying assumptions these changes can be given a structural interpretation if the usury shock is assumed to have affected credit supply but not credit demand that is if the usury law had a differential impact on the supply of various types of credit but a uniform impact on demand then we can identify and estimate a demand equation our key finding is that demand is interest rate elastic particularly in the more affluent north 2005 by the european economic association

endogenous capital market imperfections human capital and intergenerational mobility in this paper capital market imperfections are endogenized considering an adverse selection problem between banks and borrowers we develop a growth model with linear olg wealth dynamics where agents are heterogeneous in terms of observable wealth and ability which is private information we show that banks react to this informational asymmetry by granting higher loans to talented borrowers this in turn helps poor and talented agents to become educated and catch up with the rich agents furthermore the credit market friction leads to greater human capital accumulation

revealed performances worldwide rankings of economists and economics departments 1990 2000 in this paper i study the production of academic research by economics departments and economists worldwide rankings are provided based on both citations and publications these rankings reveal a dominant position of the united states in the production of economics literature over time however the extent of this dominance is decreasing jel a10 a14

credit elasticities in less developed economies implications for microfinance policymakers often prescribe that microfinance institutions increase interest rates to eliminate their reliance on subsidies this strategy makes sense if the poor are rate insensitive then microlenders increase profitability or achieve sustainability without reducing the poor s access to credit we test the assumption of price inelastic demand using randomized trials conducted by a consumer lender in south africa the demand curves are downward sloping and steeper for price increases relative to the lender s standard rates we also find that loan size is far more responsive to changes in loan maturity than to changes in interest rates which is consistent with binding liquidity constraints

insurance credit and technology adoption field experimental evidence from malawi this brief summarizes the insurance credit and technology adoption field experimental evidence from malawi the farmers were offered loans for the november 2006 planting season does production risk suppress the demand for credit the author implemented a randomized field experiment to ask whether provision of insurance against a major source of production risk induces farmers to take out loans to adopt a new crop technology the study sample was composed of roughly 800 maize and groundnut farmers in malawi where by far the dominant source of production risk is the level of rainfall the author randomly selected half of the farmers to be offered credit to purchase high yielding hybrid maize and groundnut seeds for planting in the november 2006 crop season the other half of farmers were offered a similar credit package but were also required to purchase at actuarially fair rates a weather insurance policy that partially or fully forgave the loan in the event of poor rainfall surprisingly take up was lower by 13 percentage points among farmers offered insurance with the loan take up was 33 0 percent for farmers who were offered the uninsured loan there is suggestive evidence that reduced take up of the insured loan was due to farmers already having implicit insurance from the limited liability clause in the loan contract insured loan take up was positively correlated with farmer education income and wealth which may proxy for the individual s default costs by contrast take up of the uninsured loan was uncorrelated with these farmer characteristics

sticky prices new evidence from retail catalogs this paper presents new results on the size frequency and synchronization of price changes for twelve selected retail goods over the past 35 years three basic facts about the data are uncovered first nominal prices are typically fixed for more than one year although the time between changes is very irregular second prices change more often during periods of high overall inflation third when prices do change the sizes of the changes are widely dispersed both large and small changes occur for the same item and the sizes of these changes do not closely depend on overall inflation

do liquidity constraints and interest rates matter for consumer behavior evidence from credit card data this paper utilizes a unique new dataset of credit card accounts to analyze how people respond to changes in credit supply the data consist of a panel of thousands of individual credit card accounts from several different card issuers with associated credit bureau data we estimate both marginal propensities to consume mpcs out of liquidity and interest rate elasticities we also evaluate the ability of different models of consumption to rationalize our results distinguishing the permanent income hypothesis pih liquidity constraints precautionary saving and behavioral models we find that increases in credit limits generate an immediate and significant rise in debt counter to the pih the average mpc out of liquidity ddebt dlimit ranges between 10 14 the mpc is much larger for people starting near their limits consistent with binding liquidity constraints however the mpc is significant even for people starting well below their limit we show this response is consistent with buffer stock models of precautionary saving nonetheless there are other results that conventional models cannot easily explain e g why so many people are borrowing on their credit cards and simultaneously holding low yielding assets unlike most other studies we also find strong effects from changes in account specific interest rates the long run elasticity of debt to the interest rate is approximately 1 3 less than half of this elasticity represents balance shifting across cards with most reflecting net changes in total borrowing the elasticity is larger for decreases in interest rates than for increases which can explain the widespread use of temporary promotional rates the elasticity is smaller for people starting near their credit limits again consistent with liquidity constraints

money and its substitutes abstract measurement of the elasticity of substitution between financial assets is an important element in evaluating the role that those assets play in the economy this paper generalizes the model developed by chetty by relaxing the separability conditions while restoring homotheticity to the utility function the general model is found to produce empirical estimates that are statistically superior to the original while substantially reducing the estimated elasticities of substitution consequently the various types of savings accounts no longer appear to be very close substitutes for money balances

estimating the liquidity of m2 components in the post didmca era i introduction the depository institutions deregulation and monetary control act of 1980 didmca together with the garn st germain act and related federal reserve actions resulted in a thorough redefinition of the money stock measures as discussed in anderson and kavajecz 1994 and related writings the current components of m1 and m2 recognize the significant changes among existing assets that occurred throughout the 1970s examples include the rapid growth of money market mutual funds mmmfs and the breakdown of distinctions between deposits of commercial banks and thrift institutions the measures of money include assets introduced by legislation such as now accounts and money market deposit accounts mmdas the didmca also deregulated interest rates on bank deposits with january 1986 completing the phase out of regulation q this paper examines the liquidity of the assets within the restructured definitions of m1 and m2 we offer empirical evidence regarding the cost of decreasing these asset holdings as well as for other bank deposits such as individual retirement accounts iras the results can be used to assess how easily they can be converted into a medium of exchange section ii features the model formulation based upon a representative household s intertemporal optimization problem with liquidity costs our study provides estimates of both relative and absolute liquidity as lippman and mccall 1986 discuss liquidity represents a fundamental characteristic of assets yet remains elusive in its measurement to this extent research seeking to measure or estimate liquidity is sparse lippman and mccall s 1986 criterion consists of the optimal expected amount of time to transform an asset into money hooker and kohn 1994 define liquidity as the difference between the asset price at its optimal sale relative to its immediate sale adjustment cost serves as our measure for liquidity this criterion conforms to commonly used definitions found in economics textbooks particularly those that emphasize asset withdrawal for transactions mishkin 1995 55 for example defines liquidity as the relative ease and speed with which an asset can be converted into a medium of exchange the adjustment cost approach measures withdrawal costs in dollar units it regards liquidity as an inherent characteristic of the asset and captures the total cost involved with changing asset holdings the implicit inclusion of time costs within the formulation is consistent with lippman and mccall 1986 asymmetry in adjustment cost arises because liquidity explicitly involves the cost of reducing asset holdings while economic units incur costs due to increasing financial assets larger costs result from withdrawal we use a minor modification of pfann and verspagen s 1989 asymmetric adjustment cost function proposed by dutkowsky 1995 the function offers several attractive properties for estimating liquidity cost it allows for asymmetry in the direction of either increases or decreases within portfolio reallocation further the commonly used linear quadratic function is nested within this equation enabling straightforward testing for greater withdrawal cost the asymmetric adjustment cost specification has been utilized previously by pfann and palm 1993 within labor demand section iii reports empirical findings we estimate the structural parameters using generalized method of moments gmm and monthly data for the december 1983 march 1993 period the results reveal significant evidence of asymmetry in the direction of decreasing asset holdings for all components except demand deposits this finding supports the existence of greater cost for withdrawing as opposed to increasing holdings among interest bearing accounts further the evidence points to a definite ordering of liquidity among several assets within this group savings deposits rank as the most liquid followed by small time deposits mmmfs and individual retirement accounts

a dual approach to measuring the nearness of near monies increasing returns to scale rts is frequently po stulated as affecting productivity in surface coal mining however it is not cl ear whether increased capital intensity or increased output is the relevant phen omenon a ray homothetic production function that incorporates the capital labor mix and fixed site geology into the scale elasticity is presented and estimated with a micro mine level dataset the results indicate that higher capital int ensity contributes to higher rts for some types of capital equipment but not al l on the average increasing rts was found with few mines approaching optimal scale copyright 1987 by mit press

exponential growth bias and household finance exponential growth bias is the pervasive tendency to linearize exponential functions when assessing them intuitively we show that exponential growth bias can explain two stylized facts in household finance the tendency to underestimate an interest rate given other loan terms and the tendency to underestimate a future value given other investment terms bias matters empirically more biased households borrow more save less favor shorter maturities and use and benefit more from financial advice conditional on a rich set of household characteristics there is little evidence that our measure of exponential growth bias merely proxies for broader financial sophistication what drives household financial decisions the canonical economic model assumes that consumers choose to consume borrow or save based on their preferences their expectations and the costs and benefits of borrowing and saving a growing body of work applies insights from psychology to enrich specifications of three of the model s key pieces preferences expectations and problem solving conditional on parameter values 1 in this paper we bring psychological evidence to bear on a fourth specification issue how consumers perceive the costs and benefits of borrowing and saving we begin by tying together existing and new evidence on these cost perceptions to show that most consumers err systematically when given information commonly available in the market on the saving side consumers display future value bias a systematic tendency to underestimate a future value given

welfare costs of inflation when interest bearing deposits are disregarded a calculation of the bias abstract most estimates of the welfare costs of inflation are devised considering only noninterest bearing assets ignoring that since the 1980s technological innovations and new regulations have increased the liquidity of interest bearing deposits we investigate the resulting bias sufficient and necessary conditions on its sign are presented along with closed form expressions for its magnitude two examples dealing with bidimensional bilogarithmic money demands show that disregarding interest bearing monies may lead to a non negligible overestimation of the welfare costs of inflation an intuitive explanation is that such assets may partially make up for the decreased demand of noninterest bearing assets due to higher inflation

alternative treatments of congestion in dea a rejoinder to cooper gu and li abstract this paper is a response to cooper w w b gu and s li comparisons and evaluations of alternative approaches to the treatment of congestion in dea european journal of operational research this issue who claim that the standard fgl procedure by fare grosskopf and lovell for dealing with congestion in dea can i fail to identify congestion when it is present and ii identify congestion when it is not present we clarify the notion of congestion and its relationship to structural efficiency and free disposability respectively to point out that the fgl approach was originally intended for measuring structural efficiency i e the influence of congestion on the efficiency of a particular production unit not for identifying occurrence of congestion in any feasible production vector moreover we point out that the result of cooper et al partially arises from ignorance of some key maintained assumptions underlying the fgl approach further we present some counter examples which demonstrate that the alternative approach advocated by cooper et al can equally fail in identification of congestion finally some remarks on the influence of sampling error and errors in variables on the two stage dea approaches are presented

which microfinance institutions are becoming more cost effective with time evidence from a mixture model italian speakers tend to stress the second component of german morphologically complex words such as compounds and prefix verbs even if the first component is lexically stressed to improve their prosodic phrasing an automatic pronunciation teaching method was developed based on auditory feedback of prosodically corrected utterances in the learners own voices basically the method copies contours of f0 local speech rate and intensity from reference utterances of a german native speaker to the learners speech signals it also adds emphasis to the stress position in order to help the learners better recognise the correct pronunciation and identify their errors a perception test with german native speakers revealed that manipulated utterances significantly better reflect lexical stress than the corresponding original utterances thus two groups of italian learners of german were provided with different feedback during a training session one group with manipulated utterances in their individual voices and the other with correctly pronounced original utterances in the teacher s voice afterwards both groups produced the same sentences again and german native speakers judged the resulting utterances resynthesised stimuli especially with emphasised stress were found to be a more effective feedback than natural stimuli to learn the correct stress position since resynthesis was obtained without previous segmentation of the learners speech signals this technology could be effectively included in computer assisted language learning software

experimental evidence on returns to capital and access to finance in mexico a strong theoretical argument for focusing on access to finance is that financial market imperfections can result in large inefficiencies as firms with productive investment opportunities underinvest lack of access to finance is a frequent complaint of microenterprises which account for a large share of employment in developing countries however assessing the extent to which a lack of capital affects their business profits is complicated by the fact that business investment is likely to be correlated with a host of unmeasured characteristics of the owner and firm such as entrepreneurial ability and demand shocks in a randomized experiment that gave cash and in kind grants to small retail firms providing an exogenous shock to capital the shock generated large increases in profits with the effects concentrated among firms that were more financially constrained the estimated return to capital was at least 20 33 percent a month three to five times higher than market interest rates