a theory of socio economic disparities in health over the life cycle motivated by the observation that medical care explains only a relatively small part of the ses health gradient we present a life cycle model that incorporates several additional behaviours that potentially explain jointly a large part of observed disparities as a result the model provides not only a conceptual framework for the ses health gradient but more generally an improved framework for the production of health we derive novel predictions from the theory by performing comparative dynamic analyses more generally our comparative dynamic method can be applied to models of similar form e g human capital health deficits firm investment to name a few

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

bank forward lending in alternative funding environments this paper examines the effects of loan commitments on bank lending behavior in both deposit funding and liability management environments assuming that the bank lends exclusively under commitments and that the number of commitments exercised is uncertain the bank must choose its supply of commitments given this choice the bank becomes a passive lender to commitment holders our focus on forward credit markets sheds new light on the private bankers assertion that they do not directly determine their level of lending but merely accommodate the credit needs of their customers similarly the central banker s claimed inability to control monetary aggregates in the short run becomes understandable in a new context it is shown that the advent of liability management will reduce the volume of loan commitments and the expected size of the bank and of the banking system it is also shown that increased uncertainty regarding borrower takedown behavior diminishes the volume of commitments expected bank and banking system size

forced to be rich returns to compulsory schooling in britain do students benefit from compulsory schooling in an important article oreopoulos 2006 studied the 1947 british compulsory schooling law change and found large returns to schooling of about 15 using the general household survey ghs re analysing this dataset we find much smaller returns of about 3 on average with no evidence of any positive return for women and a return for men of 4 7 additionally we utilise the new earnings survey panel data set nespd that has earnings information superior to that in the ghs and find similar estimates zero returns for women and returns of 3 to 4 for men

socio economic status health and lifestyle abstract the role of lifestyle in mediating the relationship between socio economic characteristics and health has been discussed extensively in the epidemiological and economic literatures previous analyses have not considered a formal framework incorporating unobservable heterogeneity in this paper we develop a simple economic model in which health is determined partially by lifestyle which depends on preferences budget and time constraints and unobservable characteristics we estimate a recursive empirical specification consisting of a health production function and reduced forms for the lifestyle equations using maximum simulated likelihood msl for a multivariate probit mvp model with discrete indicators of lifestyle choices and self assessed health sah on british panel data from the 1984 and 1991 health and lifestyle survey hals we find that sleeping well exercising and not smoking in 1984 have dramatic positive effects on the probability of reporting excellent or good sah in 1991 and that these effects are much larger having accounted for endogeneity the failure of epidemiological analyses to account for unobserved heterogeneity can explain their low estimates of the relevance of lifestyle in the socio economic status health relationship indicators for prudent alcohol consumption and eating breakfast in 1984 are not found to be statistically significant determinants of sah in 1991

on the consistency of the black scholes model with a general equilibrium framework we construct a simple economy with consumption only at the final date in which we endogenize the stochastic behavior of prices assumed in the black scholes model certain preferences constant proportional risk aversion and beliefs are shown to be sufficient and necessary in certain respects for the existence of such an equilibrium the analysis is then generalized to a continuous consumption framework in which we embed the merton proportional dividend model

pricing and risk management of interest rate swaps this paper reformulates the valuation of interest rate swaps swap leg payments and swap risk measures all under stochastic interest rates as a problem of solving a system of linear equations with random perturbations a sequence of uniform approximations which solves this system is developed and allows for fast and accurate computation the proposed method provides a computationally efficient alternative to monte carlo based valuations and risk measurement of swaps this is demonstrated by conducting numerical experiments and so our method provides a potentially important real time application for analysis and calculation in markets

interest rates and bank profitability additional evidence note large banking organizations 1978 assets greater than 2 billion are well hedged against interest rate fluctuations 2 when market rates change their revenues and costs adjust equally quickly leaving net current operating earnings largely unaffected at the other institutional extreme thrift institutions have seriously mismatched balanced sheets 1 4 causing their earnings to fluctuate violently when interest rates change small commercial banks in many ways lie between their larger counterparts and the thrifts small banks share the predominantly retail orientation of thrifts often holding large mortgage portfolios but have access to a broader range of asset and liability powers it is therefore unclear ex ante whether small banks bear a greater resemblance to thrifts or large commercial banks in terms of interest rate risk exposure to resolve the issue empirically this note applies the methodology of 2 to a set of sixty smaller banks the empirical results are similar to the results for large banks the data do not support the conventional wisdom that banks chronically and extensively borrow short and lend long

the effect of education on adult mortality and health evidence from britain there is a strong positive and well documented correlation between education and health outcomes in this paper we attempt to understand to what extent this relationship is causal our approach exploits two changes to british compulsory schooling laws that generated sharp across cohort differences in educational attainment using regression discontinuity methods we find the reforms did not affect health although the reforms impacted educational attainment and wages our results suggest caution as to the likely health returns to educational interventions focused on increasing educational attainment among those at risk of dropping out of high school a target of recent health policy efforts jel h52 i12 i21 i28

market evidence on the effective maturity of bank assets and liabilities the recent years increase in interest rate volatility has intensified concern over the exposure of commercial banks to interest rate or funding risk since the effect of interest rate changes on the equity value of a bank depends on the maturity or duration of the bank s assets and liabilities assessing an individual bank s interest rate risk exposure requires information about the maturity composition of its portfolio it is difficult however to assess a bank s risk exposure from balance sheet data because several important asset and liability items have theoretically ambiguous effective maturities in a frictionless market a security s effective maturity will equal its stated maturity or time to repricing with market imperfections e g depositors transaction or information costs however the equilibrium cost of some deposit items may respond sluggishly or incompletely to market rate changes see hester and pierce 1975 or flannery 1982 such liabilities market values discounted at market rates would therefore fluctuate with the level of interest rates these liabilities are sometimes called core deposits which manifest sticky responses to market rate changes we define an asset or liability s effective maturity as the maturity of a fixed rate perfectly elastically supplied security with the same market value elasticity as the bank balance sheet item under consideration naturally a balance sheet item s effective maturity is the relevant determinant of its contribution to the bank s overall interest rate risk sensitivity

female labour supply and on the job search an empirical model estimated using complementary data sets we develop an empirical model of labour supply that is consistent with on the job search and which is identified and estimated by combining two data sets the u k family expenditure survey which contains information on income and expenditure and the u k labour force survey which has data on hours and job search behaviour we provide statistical evidence on the compatibility of the two samples for the purposes of estimating our model we find that search has a direct negative effect on hours of work and we establish a strong positive effect of wages on hours

toward a theory of bank loan commitments abstract the characteristics of fixed and variable rate bank loan commitments are analyzed in a contingent claims framework and valuation expressions are derived for these commitments the valuation expressions are used to present estimates of the impact of interest rate uncertainty on the liability assumed by a bank issuing loan commitments finally a simple two period asymmetric information model is employed to explain the recent trend among bankers to substitute variable rate commitments for their fixed rate counterparts

the relationship between education and adult mortality in the united states prior research has uncovered a large and positive correlation between education and health this paper examines whether education has a causal impact on health i follow synthetic cohorts using successive u s censuses to estimate the impact of educational attainment on mortality rates i use compulsory education laws from 1915 to 1939 as instruments for education the results suggest that education has a causal impact on mortality and that this effect is perhaps larger than has been previously estimated in the literature copyright 2005 wiley blackwell

networth exposure to interest rate risk an empirical analysis of indian commercial banks abstract in the basel ii era management of interest rate risk in the banking book has become significant in the first study of its kind we develop a simulation based driver driven approach to estimate the impact of interest rate volatility on the networth of indian banks during the period 2002 2004 we derive the interest rates that drive changes in deposit and prime lending rates plr then we perform monte carlo simulation and multiple regressions on these driver rates to obtain simulated shocks to deposit rates and plr we use these simulated shocks to get the 99 worst eve loss for the sample banks these losses are much larger than what the existing literature suggests this is because apart from repricing risk we are the first to find evidence of significant basis risk our results have important policy implications both for banks and regulators

does education increase pro environmental behavior evidence from europe abstract it is often observed that individuals with higher education levels tend to be more environmentally friendly yet the causal evidence is lacking because there may well be omitted variables that cause individuals to attain more education and also cause individuals to be environmentally conscious we implement a regression discontinuity design to estimate the increase in educational attainment due to changes in compulsory education laws in 20th century europe this allows us to overcome the identification problem of endogenous educational attainment using two waves of eurobarometer surveys we find a positive local average treatment effect for 7 of the 8 pro environmental behaviors an analysis of related questions on the survey supports the notion that education causes individuals to be more concerned with social welfare and to accordingly behave in a more environmentally friendly manner

does longer compulsory schooling affect mental health evidence from a british reform abstract in this paper we examine whether longer compulsory schooling has a causal effect on mental health exploiting a 1972 reform which raised the minimum school leaving age from age 15 to 16 in great britain using a regression discontinuity design we find that the reform did not improve mental health we provide evidence that extending the duration of compulsory schooling impacts mental health through channels other than increased educational attainment we argue that these effects may mitigate or offset the health returns to increased educational attainment

a canonical correlation analysis of commercial bank asset liability structures commercial banks have been the subjects of a large body of empirical re search employing regression and econometric models and discriminant analysis the purpose of this paper is to empirically identify and describe relationships including hedging behavior between the asset side and the liability capital side of the balance sheets of a cross section of large u s banks canonical correla tion analysis is the statistical technique that is employed unlike regression anal ysis which explains the behavior of a single dependent variable as a function of a set of independent variables canonical correlation analysis relates two sets of variables in the present case one set of variables is the composition of the lefthand side of the balance sheet and the other set is the right hand side the vari ables used in this study are asset and liability capital categories expressed as a proportion of total bank assets i e a percentage breakdown of the balance sheet or a common size statement these proportions are used in lieu of the more usual financial ratios and no information exogenous to the bank is employed a recent article by stowe watson and robertson 22 examines the rela tionships between the two sides of the balance sheets of a cross section of 510 large nonfinancial corporations they used canonical correlation analysis to ex plore relationships between the structure of the left and right hand sides of the balance sheet 1 the empirical results suggested several relationships 1 the firms seemed to use hedging matching the maturity structure of assets and lia bilities 2 some assets such as accounts receivable and real estate could be used as collateral for short term bank or factor loans and mortgages respectively 3 commodity producing firms should have higher levels of both inventories and accounts payable than service providing firms and 4 high risk businesses may

micro level transmission of monetary policy shocks the trading book channel abstract we open the black box of the monetary policy transmission mechanism with a granular model that considers the balance sheet composition and network relationships of each economic agent though there are several well documented channels through which monetary policy operates we focus on the overlooked trading book channel which arises because of adjustments in the accounting value of trading book exposures on banks balance sheets that have to be marked to market when interest rates change variations in banks net worth due these adjustments are used as input to a network model that incorporates the financial and corporate sectors the framework permits us to determine the effects of interest rate changes on every bank and firm in the economy and any second round contagion effects in the short run we apply the model to a comprehensive database of brazilian banks and firms from 2015 to 2020 we find that interest rate shocks affect more strongly financial stability in periods of monetary policy tightening we also find notable asymmetric effects of positive and negative interest rate shocks in the brazilian economy with positive interest rate shocks affecting more financial stability finally our results also suggest a non linear relationship between interest rate changes and financial stability reinforcing the need to mitigate monetary policy shocks through interest rate smoothing and adequate communication and transparency to society

parameters measuring bank risk and their estimation the paper develops estimation of three parameters of banking risk based on an explicit model of expected utility maximization by financial institutions subject to the classical technology restrictions of neoclassical production theory the parameters are risk aversion prudence or downside risk aversion and generalized risk resulting from a factor model of loan prices the model can be estimated using standard econometric techniques like gmm for dynamic panel data and latent factor analysis for the estimation of covariance matrices an explicit functional form for the utility function is not needed and we show how measures of risk aversion and prudence downside risk aversion can be derived and estimated from the model the model is estimated using data for eurozone countries and we focus particularly on i the use of the modeling approach as a device close to an early warning mechanism ii the bank and country specific estimates of risk aversion and prudence downside risk aversion and iii the derivation of a generalized measure of risk that relies on loan price uncertainty moreover the model provides estimates of loan price distortions and thus allocative efficiency

endogenous altruism theory and evidence from chinese twins this paper studies the endogenous formation of intersibling altruism the theory suggests that parental incentive to foster children s fraternal love is positively related to efficiency gains from

a theory of intergenerational mobility we study the link between market forces cross sectional inequality and intergenerational mobility emphasizing complementarities in the production of human capital we show that wealthy parents i

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

federal deposit insurance regulatory policy and optimal bank capital this paper seeks to explain the combination of explicit and implicit pricing for deposit insurance employed by the fdic essentially the fdic sells two products insurance and regulation to span the product space it must and does set two prices we argue that the need to establish regulatory disincentives to bank risk taking is the heart of the controversy over the adequacy of bank capital and that the ability to close risky banks before exhausting their charter value i e the value of their right to continue in business stands at the center of these disincentives and in front of the fdic s insurance reserves just as a book shouldn t be judged by its cover a government agency shouldn t be judged by the words behind its initials with the fdic federal deposit insurance corporation the agency s name describes only part of its formal operations the fdic is quasi governmental has a regional structure and sells deposit insurance however the initials fail to convey the fdic s critical place in the governmental regulatory structure as the sole federal overseer of the approximately 8900 state chartered commercial banks that have chosen not to belong the federal reserve system reflecting the federal reserve s membership problem the number of these banks is growing year by year besides selling deposit insurance at bargain explicit rates the fdic performs four regulatory functions 1 entry regulation it passes on new banks applications for deposit insurance and on branch and merger proposals as well thereby protecting the value of existing bank charters 2 examination two thirds of fdic employees are concerned with inspecting bank records and supervising managerial activity 3 regulation of deposit rates and conditions for withdrawal by tradition fdic policies on these matters conform entirely with regulations applicable to federal reserve member banks and 4 disposition of failed banks when an insured bank fails the fdic usually chooses not to liquidate it 2

financial innovation new assets and the behavior of money demand abstract two fundamental changes in us banking regulations have affected the behavior of money demand m1 the first authorized checkable deposit accounts paying explicit interest rates the second allowed these rates to be market determined the theoretical literature does not directly address the impact of these events suggesting that they are primarily an empirical issue however the empirical literature has yet to agree on the impact of financial innovation on money demand for example several studies report an increase in the elasticity of money demand several others report a decline this paper uses a lancaster type choice model to analyze formally the expected impact of these two changes on the demand for money the model derives specific conditions under which i the demand for money increases as new assets are introduced and ii the impact of either the introduction of new assets or the elimination of interest rate restrictions on the elasticity of money demand

innovations in interest rates duration transformation and bank stock returns this paper studies the cross sectional variation in the sensitivity of bank stock returns to interest rate innovations an econometric framework is developed to estimate the mismatch between asset and liability durations the innovation sensitivity is then related to duration transformation the results indicate that banks are exposed to interest rate risk and that the innovation sensitivity is positively related to duration transformation copyright 1992 by ohio state university press

economic conditions early in life and individual mortality this paper analyzes the effect of economic conditions early in life on the individual mortality rate later in life using business cycle conditions early in life as an exogenous indicator we have individual data records from dutch registers of birth marriage and death certificates covering an observation window of unprecedented size 1812 2000 these are merged with historical data on macro economic and health indicators we correct for secular changes over time and other mortality determinants we nonparametrically compare those born in a recession to those born in the preceding boom and we estimate duration models where the individual s mortality rate depends on current conditions conditions early in life age individual characteristics including individual socio economic indicators and interaction terms the results indicate a significant negative effect of economic conditions early in life on individual mortality rates at all ages

modeling the banking firm a survey this paper reports on the status of the literature on micro bank modeling and assesses our understanding of the banking firm s optimal behavior this is no mean task for much has been written on banking broadly defined over the past couple of decades the review is developed in pieces each major subproblem is outlined and the analysis used to deal with the issue explicated this is not the best way to summarize the development of a field it should be immediately recognized one would prefer to have a smooth continuum of development moving the frontier of knowledge evenly through time and across subareas yet this is rarely the way a field develops more likely individual questions attract attention and are the subjects of a substantial number of contributions after a time the field moves on to the new area of interest the banking field is no exception before embarking upon the review however a couple of lines should be devoted to previous attempts there have been essentially three first pyle 1972 analyzes the uncertainty portfolio models at a time when little existed in the literature and hence one finds the review a bit vague and sketchy baltensperger s contributions 1978 1980 are the next serious and rather extensive reviews the quality of these

interest rate uncertainty and the financial intermediary s choice of exposure the financial intermediary s choice of operating as a broker with minimal risk exposure or as an asset transformer with interest rate risk is modeled as a funds inventory decision made prior to the resolution of uncertainty regarding the borrowing or lending interest rates it is shown that an increase in the interest rate uncertainty leads the intermediary to reduce its exposure thereby offering decreased asset transformation and more brokerage services however a stochastic increase in the interest rates leads to greater asset transformation and less brokerage services the high and volatile nominal interest rates associated with contemporary inflation have prompted a pronounced change in commercial bank balance sheets low cost deposits have been replaced by alternative funding vehicles bearing high and increasingly variable interest rates see budzeika 3 4 kane 9 and silber 13 in an apparent adaptive response to the loss of deposits banks have eschewed fixed rate loans in favor of variable rate lending thereby more closely matching the durations of their assets and liabilities see flannery 6 and boltz and campbell 2 this change in bank lending practices has been popularly interpreted as an effort to immunize cash flows in the face of increased interest rate uncertainty see haley 8 and wojnilower 15 however apart from niehans and hewson 11 the adaptive recomposition of bank balance sheets has not been formally addressed in this paper we provide a model of balance sheet duration mismatching and then show that an increase in interest rate volatility is likely to lead an intermediary to choose a balance sheet that is more closely matched 1 balance sheet mismatching can be understood in terms of the two basic functions of financial intermediaries as explained by niehans 10 brokerage and asset transformation if a financial intermediary precisely matches the properties of its assets and liabilities and thereby maintains a perfectly hedged position it functions exclusively as a broker joining borrowers and lenders without assuming any risk the broker s function is then simply to reduce the search costs associated with joining complementary transactors the brokerage function is deshmukh is professor of managerial economics and decision sciences greenbaum is harold l stuart professor of banking and finance and kanatas is assistant professor of finance all at northwestern university s j l kellogg graduate school of management we gratefully acknowledge the helpful suggestions of michael brennan and an anonymous referee this project was supported by the banking research center and the kellogg center for advanced study in managerial economics and decision sciences

monetary policy and bank profitability in a low interest rate environment we analyse the impact of standard and non standard monetary policy on bank profitability we use both proprietary and commercial data on individual euro area bank balance sheets and market prices our results show that a monetary policy easing a decrease in short term interest rates and or a flattening of the yield curve is not associated with lower bank profits once we control for the endogeneity of the policy measures to expected macroeconomic and financial conditions accommodative monetary conditions asymmetrically affect the main components of bank profitability with a positive impact on loan loss provisions and non interest income offsetting the negative one on net interest income a protracted period of low monetary rates has a negative effect on profits that however only materializes after a long time period and is counterbalanced by improved macroeconomic conditions monetary policy easing surprises during the low interest rate period improve bank stock prices and cds

a fresh look at the rotten kid theorem and other household mysteries gary becker s rotten kid theorem asserts that if all family members receive gifts of money income from a benevolent household member then even if the household head does not precommit to an incentive plan for family members it will be in the interest of selfish family members to maximize total family income i show by examples that the rotten kid theorem is not true without assuming transferable utility i find a simple condition on utility functions that is necessary and sufficient for there to be the kind of transferable utility needed for a rotten kid theorem while restrictive these conditions still allow one to apply the strong conclusions of the rotten kid theorem in an interesting class of examples

simple banking profitability and the yield curve how does bank profitability vary with interest rates we present a model of a monopolistically competitive bank subject to repricing frictions and test the model s predictions using a unique panel data set on uk banks we find evidence that large banks retain a residual exposure to interest rates even after accounting for hedging activity operating through the trading book in the long run both level and slope of the yield curve contribute positively to profitability in the short run however increases in market rates compress interest margins consistent with the presence of nonnegligible loan pricing frictions

long run returns to education does schooling lead to an extended old age while there is no doubt that health is strongly correlated with education whether schooling exerts a causal impact on health is not firmly established we exploit a dutch compulsory schooling law to estimate the causal effect of education on mortality the reform provides a powerful instrument significantly raising years of schooling which in turn has a significant and robust negative effect on mortality for men surviving to age 81 an extra year of schooling is estimated to reduce the probability of dying before the age of 89 by almost three percentage points relative to a baseline of 50 percent

green returns to education does schooling contribute to pro environmental behaviours evidence from thailand we investigate whether there are green returns to education where formal education encourages pro environmental behaviours using nationally representative surveys on environmental issues in thailand to establish the causal relationship between education and green behaviours we exploit the instrumental variables strategy using the supply of state primary schooling i e the corresponding number of teachers per 1000 children which varies over time and across regions as the instrument while controlling for regional cohort and income effects we find that more years of schooling lead to a greater probability of taking knowledge based environmentally friendly actions a great deal but not cost saving pro environmental actions in addition the paper finds no significant impact of formal education on concern about global warming nor the willingness to pay for environmental tax

estimating the effect of financial aid offers on college enrollment a regression discontinuity approach an important problem faced by colleges and universities that of evaluating the effect of their financial aid offers on student enrollment decisions is complicated by the likely endogeneity of the aid offer variable in a student enrollment equation this article shows how discontinuities in an east coast college s aid assignment rule can be exploited to obtain credible estimates of the aid effect without having to rely on arbitrary exclusion restrictions and functional form assumptions semiparametric estimates based on a regression discontinuity rd approach affirm the importance of financial aid as an effective instrument in competing with other colleges for students

the sensitivity of bank stock returns to market interest and exchange rate risks abstract this paper presents and estimates a multifactor model of bank stock returns that incorporates market return interest rate and exchange rate risk factors a model of the optimizing behavior of an international banking firm is used to derive the sensitivity coefficients of the alternative factors regression equations are estimated that are based on either actual or unexpected values of the underlying factors with a post october 1979 time dummy variable and with a money center bank dummy variable standard results are obtained for the market and interest rate variables while new results are derived for the exchange rate variable the specific effects of the latter variable are found to be dependent on the time period of observation and the money center status of banks

the cyclicality of price cost margins in banking an empirical analysis of its determinants i introduction in this paper we study the cyclical behavior of price cost margins in banking calculated as the difference between the interest rate on loans and deposits using time series quarterly data for the period 1979 2005 in the united states this cyclical behavior of banks price cost margins a key fact about business fluctuations has received little attention before dueker and thornton 1997 find evidence that in cyclical downturns banks opt for a relatively high price cost margin however they focus exclusively on the markup of the bank prime lending rate over the marginal cost of funds for banks mandelman 2006 presents evidence on the cyclicality of margins for a large sample of countries and uses foreign bank penetration to explain the behavior of margins 1 in olivero 2005 aliaga diaz 2006 and aliaga diaz and olivero 2010a we document the countercyclicality of banks price cost margins in the united states in that paper we do so using an atheoretical methodology based on var forecast errors to measure comovement between variables 2 in this paper we build on this atheoretical evidence and take a step further by constructing an empirical model of the determinants of the cyclical behavior of margins here we take a theory based approach to decide on the inclusion of the relevant regressors that belong to this model doing so allows us to contribute to the literature by providing potential explanations for the previously documented countercyclical nature of margins monetary policy and credit risk could be suggested as the main and potentially the only determinants of the cyclical behavior of margins on the one hand the bank lending channel of monetary transmission predicts that the federal funds rate as a monetary policy indicator and margins are directly related therefore if policy rates exhibit a particular cyclical behavior not controlling for monetary policy could bias the estimations on the cyclical behavior of margins on the other hand credit risk is expected to be countercyclical and to raise margins so that default should help explain the countercyclicality of the latter based on these two observations our empirical methodology consists of two steps in a first step we test whether the negative and significant contemporaneous sample correlations between margins and a business cycle indicator are robust to the inclusion of controls related to monetary policy default risk and banking regulation results show it is so that there seems to be other channels through which fluctuations in the economy give rise to the observed countercyclicality of margins in a second step we look for these channels and offer several potential explanations for the observed behavior interest rate risk the economy s financial depth banks liquidity and capitalization and the share of total assets held by large banks all exert a significant impact on the behavior of margins over the business cycle these conclusions are consistent across alternative definitions of the margins and the business cycle indicator our work is linked to two strands of research in macroeconomics first our countercyclicality results are linked to the large literature on countercyclical markups in goods markets and its effects on aggregate demand started by rotemberg and saloner 1986 and rotemberg and woodford 1992 second price cost margins that vary endogenously and countercyclically in response to the state of the economy are a necessary condition for the existence of a financial accelerator as an amplifier of business fluctuations see for example bernanke and gertler 1989 and bernanke gertler and gilchrist 1998 therefore the countercyclical nature of price cost margins that we study here provides empirical support to the large body of literature in macroeconomic theory on this financial accelerator with price cost margins in the market for credit being countercyclical credit becomes more expensive in bad times firms may delay investment and production as a result and recessions may be exacerbated

mortality lifestyle and socio economic status this paper uses the british health and lifestyle survey 1984 1985 data and the longitudinal follow up of may 2003 to investigate the determinants of premature mortality in great britain and the contribution of lifestyle choices to socio economic inequality in mortality a behavioural model which relates premature mortality to a set of observable and unobservable factors is considered a maximum simulated likelihood msl approach for a multivariate probit mvp is used to estimate a recursive system of equations for mortality morbidity and lifestyles health inequality is explored using the gini coefficient and a decomposition technique the decomposition analysis for predicted mortality shows that after allowing for endogeneity lifestyles contribute strongly to inequality in mortality reducing the direct role of socio economic status this contradicts the view which is widely held in epidemiology that lifestyles make a relatively minor contribution to observed socio economic gradients in health

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

lending policies of financial intermediaries facing credit and funding risk this paper compares the optimal lending decisions of financial intermediaries that differ in their risk exposure all intermediaries are assumed to face a loan demand described by a random applicant arrival process with each applicant offering a unique risk adjusted rate of return loan demand is therefore uncertain in both quantity and quality the intermediaries differ in terms of their risk exposure because of disparate funding practices intermediaries functioning as brokers minimize their exposure by borrowing funds only as demand is realized whereas those behaving as asset transformers borrow in advance of realizing loan demand thereby maintaining a loanable funds inventory and sustaining the related exposure the optimal sequential lending policy is shown to involve setting a credit standard that becomes stricter with the length of the intermediary s planning horizon and the volume of loans outstanding most importantly it is shown that brokers adopt stricter credit standards than asset transformers and therby reduce their volume of lending

estimating average and local average treatment effects of education when compulsory schooling laws really matter the change to the minimum school leaving age in the united kingdom from 14 to 15 had a powerful and immediate effect that redirected almost half the population of 14 year olds in the mid twentieth century to stay in school for one more year the magnitude of this impact provides a rare opportunity to a estimate local average treatment effects late of high school that come close to population average treatment effects ate and b estimate returns to education using a regression discontinuity design instead of previous estimates that rely on difference in differences methodology or relatively weak instruments comparing late estimates for the united states and canada where very few students were affected by compulsory school laws to the united kingdom estimates provides a test as to whether instrumental variables iv returns to schooling often exceed ordinary least squares ols because gains are high only for small and peculiar groups among the more general population i find instead that the benefits from compulsory schooling are very large whether these laws have an impact on a majority or minority of those exposed

books are forever early life conditions education and lifetime earnings in europe we estimate the effect of education on lifetime earnings by distinguishing between individuals who lived in rural or urban areas during childhood and between individuals with access to many or few books at home at age 10 we instrument years of education using compulsory school reforms and find that whereas individuals in rural areas were most affected by the reforms those with many books enjoyed substantially higher returns to their additional education we show that books retain explanatory power even when we select relatively homogeneous groups in terms of the economic position of the household

the effects of a shift in monetary policy regime on the profitability and risk of commercial banks abstract this paper examines the effects of the fed s october 6th 1979 change in monetary policy regime on the profitability and risk of commercial banks using capital market data and an event study methodology it was found that bank stocks exhibited significant abnormal returns during the announcement week of the policy change when these abnormal returns were decomposed into a part related to unexpected interest rate changes and a part assumed to reflect increased rate variability the results were consistent with a negative relationship between bank returns and interest rate surprises as well as between bank returns and rate variability

the manipulation of children s preferences old age support and investment in children s human capital we consider the link between parents influence over the preferences of children parental investments in children s human capital and children s support of elderly parents it may pay for parents to spend resources to manipulate children s preferences in order to induce them to support their parents in old age since parents invest more in children when they expect greater support manipulation of child preferences may end up helping children and parents a new result which we call the rotten parent theorem demonstrates that if children are altruistic then even selfish parents will make the optimal investment in their children s human capital

demand for health a generalised grossman model the demand for health and medical care is analysed within a generalised grossman type health investment model its underlying assumptions are shown to differ from those employed earlier in a manner which avoids some of the criticisms levelled at grossman s model the comparative static predictions of the generalised model are examined and it is demonstrated that most previous health investment models are derivable from it also the present model is applicable to a new wider range of problems thus increasing the scope of economic explanations of health behaviour