is approval voting an unmitigated evil a response to brams fishburn and merrill brams fishburn and merrill 1988 contend that the indeterminacy of approval voting av introduced in our paper 1988 is not a vice but a surpassing virtue of av they do not compare the negative versus the positive features of av so their assertion remains a conjecture our response emphasizes the need to determine the costs of av and to evaluate them against any merits moreover by correcting and answering bfm s comments the argument against av becomes much stronger this is because we show that av s region of indeterminacy is quite large it includes most profiles some of the consequences of this instability are that the av outcome can negate the voter s true wishes that the av outcome can be volatile even to minor fluctuations of voter s decisions and that av is one of the most susceptible systems to manipulation by small groups of voters for example small maverick groups could determine the av outcome under specific circumstances av may be appropriate to identify these situations we propose the more accurate name of the unsophisticated voter system

bond indenture provisions and the risk of corporate debt abstract this paper examines the effect of alternative bond indenture provisions on the allocation of risk among the firm s claimants the approach taken here differs from that of earlier studies in that risk allocation is examined while the firm s leverage in market value terms is held constant in this context four indenture provisions are examined 1 the time to maturity 2 the promised payment schedule 3 financing restrictions and 4 priority rules it is concluded that risk is transferred from stockholders to bondholders as the time to maturity and promised payment increase appropriately furthermore substitution of longer term debt for an equal amount of shorter term debt also increases the risk to bondholders while decreasing the risk to stockholders the analysis shows that a coupon bond can be represented by a unique discount bond with the same risk and value this permits the characterization of the effective maturity of a risky debt issue a concept analogous to the stochastic duration of a default free coupon bond these results are shown to be independent of the means used to finance the debt issue finally it is concluded that the relative risk associated with different bonds issued by the same firm cannot be determined by the structure of priority rules alone it is also necessary to consider the timing of the promised payments compared to that of the other debt issues in the firm s capital structure

a note on discount rate policy and the variability of discount window borrowing abstract the purpose of this note is to evaluate the appropriate discount rate policy rules consistent with minimization of the variability of borrowing at the federal reserve discount window in the context of goodfriend s 1983 model of the bank borrowing decision it is demonstrated that either a penalty rate or a subsidy rate policy will produce minimized variability of borrowing so long as the subsidy rate adjusts point for point to changes in the value of the federal funds rate these policy rules are compatible with a policy procedure designed to target borrowed or non borrowed reserves if the fed does not adhere to one of these specific rules minimization of borrowing variability requires an open market procedure in which the fed pegs the federal funds rate

a note on interest on required reserves as an instrument of monetary control abstract the purpose of this paper is to evaluate the potential role of interest on required reserves as a monetary control instrument it is found that an increase in the interest rate paid on reserves held at the federal reserve has counteracting effects on the variability of the money stock hence there is an optimal setting for the interest rate on required reserves that theoretically may include or lie anywhere between the extreme cases of no interest payment and the payment of interest at the maximum feasible level

approval voting borda winners and condorcet winners evidence from seven elections we analyze 10 three candidate elections and mock elections conducted under approval voting av using a method developed by falmagne and regenwetter 1996 that allows us to construct a distribution of rank orders from subset choice data the elections were held by the institute of management science the mathematical association of america several professional organizations in britain and the institute of electrical and electronics engineers seven of the 10 elections satisfy the conditions under which the falmagne regenwetter method is suitable for these elections we recreate possible underlying preferences of the electorate on the basis of these distributions of preferences we find strong evidence that av would have selected condorcet winners when they exist and would have always selected the borda winner thus we find that av is not just simple to use but also gives rise to outcomes that well reflect voter preferences our results also have an important implication for the general study of social choice processes they suggest that transitive majority orderings may be expected in real world settings more often then the formal social choice literature suggests in six out of seven data sets we find social welfare orders only one data set generates cycles anywhere in the solution space

the impact of natural disaster on energy consumption international evidence abstract this research shows that natural disasters may hurt energy consumption by using data on 123 countries over the period 1990 2015 and classifying them according to their economic development level and region based on world development indicators we employ a two step system gmm method to examine the effect of natural disasters on energy consumption presenting findings that support our hypotheses in the models and show a strong negative effect for low income countries or those in the africa region after considering an alternative proxy for natural disaster we implement quantile regression methods their results find that natural disasters exhibit a negative and significant impact on oil renewable and nuclear energy consumptions the quantile regression models used in the robustness check present that the effects are stronger for low level energy consumption economies

president perot or fundamentals of voting theory illustrated with the 1992 election different voting systems can lead to different election outcomeseven when voter preferences are held constant using the 1992 election as anexample it is shown how the outcome of every positional votesystem can be found similarly every possible cumulative andapproval vote outcome is shown multiple vote systems likeapproval and cumulative voting have disturbing properties usingthe 1992 election as illustration it is shown how a candidate whowins under every positional vote system who wins every pairwisevote i e is the condorcet winner and who has the most firstplace and least last place votes may nevertheless lose underapproval or cumulative voting similarly it is shown how acandidate who loses under every positional system who loses everypairwise vote i e is the condorcet loser and who has the leastfirst place and most last place votes may nevertheless win underapproval or cumulative voting

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

living like there s no tomorrow the psychological effects of an earthquake on savings and spending behavior abstract natural disasters impact economies not only through physical damages but also by affecting survivors emotionally and psychologically this can alter their economic behavior in ways that remain poorly understood we present a model of post disaster savings that reveals two opposing tendencies the need to self insure through increased savings and the drive to enjoy life while it lasts through increased spending we use panel datasets from china s sichuan province and isolate psychological impacts by focusing on those who lived in quake areas but did not themselves suffer damages or injuries although they did not bear economic losses they saved less spent more on alcohol and played majiang a chinese game more often suggesting that the no tomorrow tendency dominated over the precautionary tendency the magnitude of the savings rate impact a drop of 0 17 percentage points for each percent of distance closer to the epicenter is economically significant and persists in the medium term

the problem of strategic behavior under approval voting approval voting is being promoted as the election reform of the 20th century brams 1980 p 105 and indeed if voters preferences are dichotomous approval voting has some remarkable qualities it is uniquely strategy proof a candidate wins if and only if he is a condorcet winner and voters have simple strategies that are at once sincere and sophisticated however all of these results depend on the existence of dichotomous preferences a contrived and empirically unlikely assumption here i show that these virtues of approval voting are replaced by some rather undesirable features under more plausible assumptions more fundamentally rather than promoting honest behavior as is sometimes implied the existence of multiple sincere strategies almost begs voters to behave strategically i also examine sophisticated approval voting and show that in the general case it need not pick a condorcet alternative ironically there is a condition under which condorcet winners may always be picked but for this to occur voters sometimes have to vote for candidates of whom they disapprove

commercial bank refinancing and economic stability an analysis of european features abstract this paper investigates the effect of two types of central bank advances viz lombarding and rediscounting on the economy we conclude that the root of the distinction is the differential collateralization of these two forms of advances the results suggest that while both methods of refinancing reduce interest rate movement rediscounting dampens the impact of base money and real sector disturbances debt equity shifts have greater price effects with rediscounting than with lombarding the paper also investigates the effects of a pegged rate pricing policy it is shown that a pegged rate policy is an intermediary between fixed and market rate regimes

the problem of indeterminacy in approval multiple and truncated voting systems it is well known that a plurality election need not reflect the true sentiments of the electorate some of the proposed reform procedures such as approval and cumulative voting share the characteristics that there are several ways to tally each voter s preferences voting systems that permit truncated ballots share this feature it is shown that the election results for any such procedure can be highly indeterminate all possible election results can occur with the same choice of sincere voters this conclusion of indeterminacy holds even when measures of voters sentiments such as the existence of a condorcet winner or even much stronger measures indicate there is considerable agreement among the voters then multiple systems are compared with all standard tallying procedures for instance a corollary asserts it is probable for the plurality voting method to elect the condorcet winner while approval voting has an indeterminate outcome

a micro model of the federal funds market this paper demonstrates that valuable insights into the determination of federal funds rates can be gained through modeling the micro decisions of market participants fed fund demand functions are derived for different bank valuation functions and several implications are discussed specifically it is i possible to rationalize the observation that large banks are net purchasers and small banks net sellers of fed funds ii to explain the positive spread of fed funds rates over other short term money market rates and iii to link the size of this spread to the federal reserve s underlying monetary policy strategy

a general equilibrium money and banking paradigm in this paper we propose and analyze a new paradigm for monetary analysis that is considerably richer than the standard money multiplier models found in the literature a general equilibrium approach to financial assets is developed that leads directly to a multiplier system that transcends the traditional dependence on demand deposits and is easily amenable to exposition and manipulation the model incorporates financial innovation and regulatory changes easily and allows for the general equilibrium effects of the variation in financial ratios that result from induced movements in income interest rates or prices the current analysis differs from traditional multiplier presentations in two distinct ways first the traditional approach to monetary expansion and multiplier analysis relies upon the ratios of various financial assets to demand deposits over the last decade decreased financial regulation and subsequent innovation have substantially changed the nature of depository institution liabilities and their substitutability with demand deposits this has led to the reduction in emphasis on demand deposits per se and an increasing dependence upon transaction accounts other than demand deposits thrift institutions now accounts automatic transfer accounts and overdrafts money market mutual funds and overnight repurchase agreements have made the dependence on demand deposits as a basis for multiplier analysis somewhat obsolete and artificial the model developed here can accommodate any number of transaction assets by specifying general asset demand ratios relative to total household wealth the second and more fundamental way in which our model differs from existing ones is the way in which it weds general equilibrium considerations with simple multiplier analysis the traditional approach to multipliers is to assume that any ratio between two financial assets vying for a role in the aggregate wealth portfolio is exogenous and invariant to other variables in today s economy this seems rather inappropriate any regulatory or asset preference change will result in changes in the endogenous variables in the economy which will further impact financial demands the exogeneity of asset preferences and reserve ratios is no

cointegration and market integration an application to the indonesian rice market this article suggests improvements in the use of regression analysis to measure spatial market integration the procedure pioneered by ravallion is still widespread but is valid only under certain conditions of exogeneity the alternative offered here is an error correction mechanism which makes it possible to test for exogeneity as well as indicating the direction and strength of causality in price formation between markets the method is illustrated with data on rice prices in different parts of the indonesian market the results confirm among other things that supply sources are more important than demand sources in driving prices

a new approach to measure tactical voting evidence from the british elections although tactical voting attracts a great deal of attention it is very hard to measure as it requires knowledge of both individuals voting choices as well as their unobserved preferences in this article we present a simple empirical strategy to nonparametrically identify tactical voting patterns directly from balloting results this approach allows us to study the magnitude and direction of strategic voting as well as to verify which information voters and parties take into account to determine marginal constituencies we show that tactical voting played a significant role in the 2010 election mainly for liberal democratic voters supporting labour moreover our results suggest that voters seem to form their expectations based on a national swing in vote shares rather than newspaper guides published in the main media outlets or previous election outcomes we also present some evidence that suggests that campaign spending is not driving tactical voting

susceptibility to manipulation all positional voting procedures can be manipulated so it is natural to question whether some of these systems are more susceptible to being manipulated than others in this essay this susceptibility factor is measured for strategic action involving small groups it is shown that the system least susceptible to micro manipulations for n 3 candidates is the borda count bc the optimal choice changes with n but the analysis shows that the bc always fares fairly well on the other hand the plurality and anti plurality vote as well as multiple voting systems such as approval voting and cumulative voting always fare quite poorly with respect to susceptibility finally it is shown why it is possible to justify any voting method by choosing an appropriate measure of susceptibility and imposing the appropriate assumptions on the profiles of voters this statement emphasizes the importance of the basic assumptions of neutrality used throughout this essay

divided majority and information aggregation theory and experiment this paper studies theoretically and experimentally the properties of plurality and approval voting when a majority gets divided by information imperfections the majority faces two challenges aggregating information to select the best majority candidate and coordinating to defeat the minority candidate under plurality the majority cannot achieve both goals at once under approval voting it can welfare is strictly higher because some voters approve of both majority alternatives in the laboratory we find i strong evidence of strategic voting and ii superiority of approval voting over plurality finally subject behavior suggests the need to study equilibria in asymmetric strategies

mortality risk and human capital investment the impact of hiv aids in sub saharan africa abstract over the past several decades the hiv aids epidemic has dramatically altered patterns of morbidity and mortality in sub saharan africa with potential consequences for human capital investment and economic growth using data from demographic and health surveys for fifteen countries in sub saharan africa i estimate the relationship between regional hiv prevalence and the change in individual human capital investment over time consistent with a simple model of human capital investment incorporating mortality risk i find that areas with higher levels of hiv experienced relatively larger declines in schooling

saving and liquidity constraints this paper is concerned with the theory of saving when consumers are not permitted to borrow and with the ability of such a theory to account for some of the stylized facts of saving behavior the models presented in the paper seem to account for important aspects of reality that are not explained by traditional life cycle models copyright 1991 by the econometric society

asset returns discount rate changes and market efficiency the primary purpose of this paper is to reconcile the previous findings of discount rate endogeneity with the presence of discount rate announcement effects in securities markets the crux of this reconciliation is the distinction between technical discount rate changes that are endogenous and nontechnical changes which contain some informative policy implications in essence we attempt to separate expected discount rate changes from unexpected changes or equivalently the expected component of discount rate changes from the unexpected component if markets are efficient the former should have no announcement effects while the latter may be associated with an announcement effect accordingly the focus of the empirical analysis is on the interaction between discount rate exogeneity the specific monetary policy regime and accouncement effects in addition we examine whether the behavior of these markets in the postannouncement period is consistent with the rapid price adjustment implied by market efficiency

growth and saving among individuals and households the lifecycle theory of saving and consumption predicts that changes in an economy s rate of economic growth will affect its aggregate saving rate by changing the lifetime resources of younger people relative to older people however studies that track the saving behavior of cohorts of household heads over time as they age have yielded estimates of age saving profiles that are too flat for growth to have much effect on the aggregate saving rate one problem with the cohort approach is that multigenerational households are common in many counties and the age saving profiles of households may be quite different from the age saving profiles of individuals that make up households in this paper we propose a method for estimating individual age saving profiles using household data this method is applied to data from taiwan and thailand we find that the individual method yields results that are more favorable to the lifecycle model these results imply that changes in the rate of economic growth may in som

estimating the market effect of a food scare the case of genetically modified starlink corn abstract in 2000 a genetically modified corn variety called starlink that was not approved for human consumption was discovered in the food corn supply to estimate the price impact of this event on the u s corn market we develop the relative price of a substitute method this method applies not only to the starlink event but also to rare events in other markets we find that the contamination led to a 6 8 discount in corn prices and that the suppression of prices lasted for at least a year

bank regulation and monetary policy the depository institutions deregulation and monetary control act 1980 and the garn st germain depository institutions act 1982 are the two most significant pieces of bank legislation since the 193os their significance stems from the fact that they have sought to roll back a number of the regulations and restrictions imposed on bank activity and competition in the 1933 80 period among the important provisions of these acts are a gradual elimination of regulation q ceilings on time and savings deposits by march 1986 the amelioration of state imposed usury ceilings on loans the nationwide provision of interest bearing transaction type accounts negotiable order of withdrawal now and super now accounts permission for thritts to expand into bank like products such as commercial and industrial loans consumer loans and credit cards and the development of new types of savings accounts such as mmdas l in addition to legislative deregulation we have also witnessed homemade deregulation as banks have sought to exploit often with great success loopholes in the bank holding

strategic voting equilibria under the single nontransferable vote previous investigations of strategic voting equilibria in mass electorates have looked only at single member districts i shall investigate such equilibria in multimember districts operating under the single nontransferable vote system what appear to be the most natural equilibria conform to the m 1 rule according to which strategic voting in m seat districts produces exactly m 1 vote getting candidates in equilibrium any others having their support totally undercut this result provides the beginnings of a formal underpinning for reed s recent extension of duverger s law to the japanese case the model also generates specific and empirically testable hypotheses concerning the exceptions to the m 1 rule that one ought to expect in equilibrium i test these hypotheses with japanese data finally the model also reveals a type of strategic voting that is specific to multimember districts i use japanese data again to explore the empirical importance of this kind of strategic voting

the macroeconomic consequences of disasters abstract natural disasters have a statistically observable adverse impact on the macro economy in the short run and costlier events lead to more pronounced slowdowns in production yet interestingly developing countries and smaller economies face much larger output declines following a disaster of similar relative magnitude than do developed countries or bigger economies a close study of the determinants of these adverse macroeconomic output costs reveals several interesting patterns countries with a higher literacy rate better institutions higher per capita income higher degree of openness to trade and higher levels of government spending are better able to withstand the initial disaster shock and prevent further spillovers into the macro economy these all suggest an increased ability to mobilize resources for reconstruction financial conditions also seem to be of importance countries with more foreign exchange reserves and higher levels of domestic credit but with less open capital accounts appear more robust and better able to endure natural disasters with less adverse spillover into domestic production

using weather variability to estimate the response of savings to transitory income in thailand this paper measures the extent to which farmers are able to use savings and dissavings to smooth consumption in response to unexpected shocks to income time series information on regional rainfall is used to construct estimates of transitory income due to rainfall shocks the relationship between these measures of transitory income and savings indicates that farm households save a significantly higher fraction of transitory income than nontransitory income jel d91 016 the incomes of farm households in developing countries are notorious for being both low and uncertain policies that increase the incomes of farmers may well be different

controlling monetary aggregates the discount window this paper argues that current discount window policy coupled with non borrowed reserve targeting of the federal reserve makes the quantity of high powered money endogenous examination of the advisability of this procedure in a stochastic environment is conducted using a general equilibrium financial model it is concluded that the current policy reduces the destabilizing effects of shifts between various depository financial assets but increases the effect of other asset portfolio shifts and aggregate supply disturbances these results are consistent with the work of poole inasmuch as the current debate over discount policy is a repackaging of the debate over interest rate or aggregates control for monetary policy

reserve requirements and economic stability reserve requirements have become a common institutional feature of our monetary systems they are widely held to be indispensable for zfficient control of the financial sector of the economy yet relatively little analysis has been directed at the question of what constitutes an optimal level and structure of reserve requirements in the traditional literature the major exceptions concetn some discussions of the extreme values of 100 percent or zero requirements especially the former see e g 1 5 6 7 10 for a zero required reserve proposal see 3 in recent years some newer studies dealing with these issues have appeared see e g 8 9 11 12 15 in all of these studies the focus is almost exclusively on money stock control generally speaking their results support the 100 percent reserves idea though such a scheme is usually seen as infeasible for political or institutional reasons leading to recommendations to set requirements as high as possible against deposits included in the money stock subject to whatever constraints of this nature are perceived the underlying idea of course is that this minimizes the influence of private sector disturbances on the money stock by lowering the money multiplier and making it equal to one in the extreme case of a 100 percent requirement reserve requirements are comparable to a tax on a particular economic activity namely the production of deposit accounts as such they have efficiency effects similar to those of a tax on other types of activities although this has always been

economic development and the impacts of natural disasters abstract we use disaster impact data over time to examine the degree to which the human and economic losses from natural disasters are reduced as economies develop we find that countries with higher income higher educational attainment greater openness more complete financial systems and smaller government experience fewer losses

on the theory of strategic voting many analyses of plurality rule elections predict the complete coor dination of strategic voting and hence support for only two candidates here i suggest that stable multi candidate support will arise in equilibrium a group of voters must partially coordinate behind one of two challenging candidates in order to dislodge a disliked incumbent in a departure from existing models the popular support for each challenger is uncertain this support must be inferred from the private observation of informative signals such as the social communication of pref erences throughout the electorate or the imperfect observation of opinion polls the uniquely stable voting equilibrium entails only limited strategic voting and hence incomplete coordination this is due to the surprising presence of negative feed back an increase in the degree of strategic voting by others reduces the incentives for an individual to vote strategically the incentive to vote strategically is lower in relatively marginal elections after controlling for the distance from contention of a trailing preferred challenger a calibration of the model applied to the uk general election of 1997 is consistent with the impact of strategic voting and the reported accuracy of voters understanding of the electoral situation it suggests that nearly 50 seats may have been lost by the conservative party due to strategic voting 1 plurality rule elections and strategic voting 1 1 strategic voting and duverger s law plurality rule elections where the winner is the candidate who receives the largest number of votes are vulnerable to strategic voting a voter might well switch away from her preferred candidate and toward a perceived leader in the hope of exerting a greater influence over the outcome of the election this phenomenon has long been the focus of both economic and political scientific study in an influential essay riker 1982b cited droop s 1871 eloquent exposition of the strategic voting problem 1 i oer my grateful thanks to the many friends colleagues seminar participants referees and editors who have oered insightful comments during the long gestation of this paper its antecedents and companion work special thanks go to steve fisher whose empirical analysis of strategic voting raised many of the questions that i seek to answer in this paper and to chris wallace this particular paper brings together much of the analysis previously circulated in the papers a new theory of strategic voting strategic voting under the qualified majority rule and idiosyncrasy information and the impact of strategic voting

evaluationwise strategy proofness abstract we consider manipulation of collective decision making rules in a framework where voters not only rank candidates but also evaluate them as acceptable or unacceptable in this richer informational setting we adopt a new notion of strategy proofness called evaluationwise strategy proofness where incentives of manipulation exist if and only if a voter can replace an outcome which he finds unacceptable with an acceptable one evaluationwise strategy proofness is weaker than strategy proofness however we establish the prevalence of a logical incompatibility between evaluationwise strategy proofness anonymity and efficiency on the other hand we show possibility results when either anonymity or efficiency is weakened

competitive interest payments on bank deposits and the long run demand for money reply this paper tests two assumptions made in previous demand for money studies the first assumption concerns the role assigned to the interest rate in the demand for money function common practice identifies the rate of interest with the opportunity cost of holding money in section i this formulation is shown to blur an important distinction between the price of money and the price of money substitutes and to implicitly assume that the relevant price variable is the difference between these two distinct prices a second assumption is that the current ban on interest payments on demand deposits is fully effective in section ii i operationally define these price variables and estimate perfectly competitive interest payments on commercial bank deposits this is done by crudely measuring commercial bank marginal costs and assuming that all excess profit is passed on to depositors in indirect ways section iii presents estimates of a more complete longrun demand for money relationship which explicitly includes an own price and a cross price as separate influences and assumes that the prohibition of the payment of interest on deposits is totally ineffective although no firm conclusion is reached concerning the proper functional specification of the demand function the results significantly improve upon previous demand for money estimates which assumed that the interest payment prohibition is totally effective in section iv the results are summarized and implications of the analysis for monetary theory are presented my competitive demand for money formulation leads to a reinterpretation of the existing evidence on what is generally referred to as the interest elasticity of demand for money this estimate is shown to be significantly biased downward it also implies that the demand for and supply of money are more interdependent than is usually assumed

the trading decision and market clearing under transaction price uncertainty this paper models an individual s trading decision given 1 his her demand function to hold shares of an asset 2 his her expectation on what the market clearing price will be and 3 the design of the market which determines how orders will be translated into trades the particular market design we consider is the batched trading periodic call regime assuming investors are distributed according to their propensities to hold shares we model the aggregation of orders to obtain market clearing values of price and volume and to show the way in which with trading friction these solutions differ from pareto efficient values the importance of this analysis for various issues concerning market design is noted when markets are not frictionless and transaction prices are uncertain the act of trading requires analysis this paper models an individual s trading decision in secondary financial asset markets in so doing we study the order flow as an endogenous part of the system we show how given an underlying demand curve the trader will choose an optimal price quantity order to transmit to the market and we model the aggregation of orders to obtain market clearing values for price and volume these models are used to show the way in which the prices and trading volume established on the market will in general differ from their pareto efficient values much of the microstructure literature that studies the behavior of transaction prices in a nonfrictionless market has assumed that orders are generated by some exogenously given stochastic process this has been true for instance in the

monetary instruments and policy rules in a rational expectations environment abstract this paper explores the implications of rational expectations and the aggregate supply theory advanced by lucas 1973 and barro 1976 for analysis of optimal monetary policy under uncertainty along the lines of poole 1970 returning to a topic initially treated by sargent and wallace 1975 not surprisingly these two classical concepts alter both the menu of feasible policy choice and the desirability of certain policy actions in our setup unlike that of sargent and wallace 1975 the systematic component of monetary policy is a relevant determinant of the magnitude of business fluctuations that arise from shocks to the system central bank behavior both the selection of monetary instruments and the framing of overall policy response to economic conditions can work to diminish or increase the magnitude of business fluctuations however the activist policies stressed by the present discussion bear little if any relationship to the policy options rationalized by the conventional analysis of monetary policy under uncertainty in particular in contrast to poole s analysis money supply responses to the nominal interest rate are not important determinants of real economic activity rather the central bank should focus on policies that make movements in the general price level readily identifiable by economic agents

are risk preferences stable it is ultimately an empirical question whether risk preferences are stable over time the evidence comes from diverse strands of literature covering the stability of risk preferences in panel data over shorter periods of time life cycle dynamics in risk preferences the possibly long lasting effects of exogenous shocks on risk preferences as well as temporary variations in risk preferences individual risk preferences appear to be persistent and moderately stable over time but their degree of stability is too low to be reconciled with the assumption of perfect stability in neoclassical economic theory we offer an alternative conceptual framework for preference stability that builds on research regarding the stability of personality traits in psychology the definition of stability used in psychology implies high levels of rank order stability across individuals and not that the individual will maintain the same level of a trait over time preference parameters are considered as distributions with a mean that is significantly but less than perfectly stable plus some systematic variance this framework accommodates evidence on systematic changes in risk preferences over the life cycle due to exogenous shocks such as economic crises or natural catastrophes and due to temporary changes in self control resources emotions or stress we note that research on the stability of risk preferences is conceptually at the heart of microeconomics and systematic changes in risk preferences have vital real world consequences

the federal reserve system and control of the money supply in the 1970s this paper addresses the question of whether the federal reserve system in the 1970s used the money supply as its predominant intermediate target of policy l did the federal reserve control the money supply in the 1970s where control is defined as requiring that the behavior of the money supply accurately reflect the stance of monetary policy desired by the federal open market committee fomc of the federal reserve system the question just posed is approached through an examination of the system s operating procedures for implementing monetary policy in the 1970s what intermediate target of policy was the fomc trying to achieve as inferred by its choice of operating procedures 2

testing market integration a model of spatial price differentials for a tradable good is proposed which avoids the inferential dangers of received methods using static price correlations the proposed method also extracts more information on the causes of price differentials from the same data the method is illustrated using monthly rice price data for postindependence bangladesh including the very substantial regional price shocks during the 1974 famine impediments to market integration are indicated

bank reserves and financial stability a stochastic financial model is developed which derives the reserve levels on financial assets which minimize price level fluctuations it is shown that these levels of reserves are a function of the structure of unanticipated shocks to asset demands and are in general quite different from the levels which minimize the fluctuations of either the nominal or real value of these assets application of the model to currency and demand deposits in the u s a suggest that the price stabilizing reserve ratio on demand deposits is approximately one half of the 12 currently mandated by the monetary control act of 1980 required reserves on deposits at financial institutions have two major economic aspects first reserves may be regarded as a tax on bank liabilities if the rate of return on reserves measured either explicitly or implicitly is less than the market rate of interest secondly reserves may be considered an important monetary instrument for controlling the value of monetary aggregates and ultimately such variables as prices interest rates and income 1 unfortunately there appears to be little agreement among economists either as to the optimal level of reserves or to the criteria for setting such reserves in order to achieve macroeconomic stability friedman 3 had formerly advocated 100 percent reserves on both time and demand deposits but recently 4 has claimed that uniformity of reserves on transactions balances is far more important than the level at which they are imposed 2 at the other end of the spectrum carson 1 has advocated abolishing required reserves on all deposits while poole and lieberman 11 have urged elimination of reserves on time deposits only if m1 is accepted as the money stock definition this paper develops a macroeconomic model where it is demonstrated that the levels of reserves which minimize the fluctuations of such ultimate economic variables as prices are in general quite different from those which stabilize various monetary aggregates these reserve levels which minimize price level fluctuations are determined primarily from the covariance structure of unanticipated disturbances influencing financial assets empirical estimation of asset disturbances for the united states suggests that these stabilizing levels of reserves on demand deposit are lower than those scheduled to prevail under the monetary control act of 1980

deregulation and oligopolistic rivalry in bank deposit markets abstract this paper provides a partial equilibrium analysis of a deregulated market for bank deposits in which banks behave oligopolistically but entry and exit are freely permitted it is demonstrated that the effects of variations in market interest rates reserve requirements and bank cost and demand conditions upon the market quantity of bank deposit money are fundamentally altered if the degree of bank rivalry adjusts endogenously hence banking deregulation may produce significant changes in the relationships between these variables and the stock of deposit money

the responsiveness of approval voting comments on saari and van newenhizen saari and van newenhizen 1987 misinterpret their findings about the indeterminacy of voting systems far from being a vice indeterminacy is a virtue in allowing voters to be more responsive to and robbing them of the incentive to misrepresent their preferences the responsiveness of approval voting in particular means that the cardinal utilities that voters have for candidates can be reflected in voters strategy choices which ultimately translate into better social choices empirical data from a recent election support these claims showing among other things that the borda system a determinate voting system favored by saari and van newenhizen is highly vulnerable to manipulation by strategic voters

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