bank market power and the risk channel of monetary policy abstract do banks lend to riskier borrowers after a monetary expansion we modify the classic costly state verification problem by introducing a risk neutral monopolistic bank which maximizes profits subject to borrowers participation while the bank can diversify idiosyncratic default risk it bears the aggregate risk in partial equilibrium the bank prefers a higher leverage ratio of the borrower when the profitability of lending increases e g after a monetary expansion this risk channel persists in a new keynesian dsge model that replicates the conditional comovement in response to a monetary policy shock and the unconditional cross correlations of bank related variables in the data

inequality and polarisation in health systems responsiveness a cross country analysis the world health report 2000 proposed three fundamental goals for health systems encompassing population health health care finance and health systems responsiveness the goals incorporate both an efficiency and equity dimension while inequalities in population health and health care finance have motivated two important strands of research inequalities in responsiveness have received less attention in health economics this paper examines inequality and polarisation in responsiveness bridging this gap in the literature and contributing towards an integrated analysis of health systems performance it uses data from the world health survey to measure and compare inequalities in responsiveness across 25 european countries in order to respect the inherently ordinal nature of the responsiveness data median based measures of inequality and polarisation are employed the results suggest that in the face of wide differences in the health systems analysed there exists large variability in inequality in responsiveness across countries

the impact of industrial structure on changes in unemployment in gb travel to work areas 1989 92 the impact of industrial structure on changes in unemployment has been hard to establish conclusively this article examines this issue for gb travel to work areas for the period from december 1989 to december 1992 and concentrates in particular on the potential role of public and semi public sector employment in dampening the impact of recession in areas where such employment is relatively important it is concluded that industrial structure was of some importance in the changes in unemployment over this time a high percentage of employment in public and semi public agencies did mitigate the impact of recession other important explanatory variables included dummies to discriminate between north central and southern regions and changes in house prices

the risk taking channel of monetary policy exploring all avenues the literature on the risk taking channel of monetary policy grew quickly leading to scattered evidence we examine this channel through different angles exploring detailed information on loan origination and performance ex ante riskier borrowers receive more funding at the extensive margin when interest rates are lower ex post performance is independent of the level of interest rates at origination still loans granted in periods of very low and stable interest rates show higher default rates once interest rates start to increase risk taking is stronger among banks with lower capital ratios suggesting that this channel may be linked to managerial incentives for risk shifting

the interaction of monetary and macroprudential policies i analyze a new keynesian dynamic stochastic general equilibrium dsge model where the financing of productive investment is affected by a moral hazard problem i solve for jointly ramsey optimal monetary and macroprudential policies i find that when a financial friction is present in addition to the standard nominal friction the optimal policy can replicate the first best allocation if the social planner can conduct both monetary and macroprudential policy using monetary policy alone is not enough a policy trade off between stabilizing inflation and output gap emerges when policy follows simple rules the source of fluctuations is relevant for the choice of the appropriate policy mix

transitory shock or structural shift the impact of the early 1980s recession on british regional unemployment this paper examines the impact of the early 1980s recession on regional unemployment in britain more specifically it seeks to evaluate the hypothesis that this recessionary shock was so severe that it caused an upward structural shift in the underlying mean unemployment rates of the regions this proposition is analysed using dickey fuller tests for difference versus trend stationarity and the augmented structural shift and trend break time series models developed by perron the results suggest that the apparent stochastic non stationarity in regional unemployment over the period 1965 95 is in fact due to an upward structural shift in regional mean unemployment rates in 1980 furthermore the nature of this shift appears to have differed as between the northern and southern regions of the country

measuring socioeconomic inequality in health health care and health financing by means of rank dependent indices a recipe for good practice the tools to be used and other choices to be made when measuring socioeconomic inequalities with rank dependent inequality indices have recently been debated in this journal this paper adds to this debate by stressing the importance of the measurement scale by providing formal proofs of several issues in the debate and by lifting the curtain on the confusing debate between adherents of absolute versus relative health differences we end this paper with a matrix that provides guidelines on the usefulness of several rank dependent inequality indices under varying circumstances

collective moral hazard maturity mismatch and systemic bailouts the paper elicits a mechanism by which private leverage choices exhibit strategic complementarities through the reaction of monetary policy when everyone engages in maturity transformation authorities haver little choice but facilitating refinancing in turn refusing to adopt a risky balance sheet lowers the return on equity the key ingredient is that monetary policy is non targeted the ex post benefits from a monetary bailout accrue in proportion to the number amount of leverage while the distortion costs are to a large extent fixed this insight has important consequences first banks choose to correlate their risk exposures second private borrowers may deliberately choose to increase their interest rate sensitivity following bad news about future needs for liquidity third optimal monetary policy is time inconsistent fourth macro prudential supervision is called for we characterize the optimal regulation which takes the form of a minimum liquidity requirement coupled with monitoring of the quality of liquid assets we establish the robustness of our insights when the set of

spatial variations in the unemployment rate a case study of north west england taylor j and bradley s 1983 spatial variations in the unemployment rate a case study of north west england reg studies 17 113 124 this paper extends earlier work on the categorization of unemployment by exploring the reasons for spatial variations in cyclical unemployment and non cyclical unemployment regression analysis is used to divide total unemployment into a cyclical category and a non cyclical category in twenty eight travel to work areas in north west england during 1969 80 the spatial patterns of these two categories of unemployment are examined and an attemptis made to explain them the main conclusions are that spatial variations in the unemployment rate have been severely exacerbated by national recessions that the spatial patterns of cyclical unemployment and non cyclical unemployment are not random and that there is considerable scope for public policy in rectifying the persistent structural weaknesses in certain groups of travel to work areas in the nw region

the sensitivity of regional unemployment rates to the national trade cycle forrest d and naisbitt b 1988 the sensitivity of regional unemployment rates to the national trade cycle reg studies 22 149 153 this paper provides recent estimates for the uk of a model of regional unemployment rate variability due to thirlwall the principal findings are that regional industrial structure has continued to play a major role in determining regional unemployment variability and that the pattern of industrial variability appears to have changed little in the post war period however there remains a degree of regional specific variability which warrants further study forrest d et naisbitt b 1988 la sensibilite des taux de chomage regionaux au cycle economique national reg studies 22 149 153 cet article fournit des estimations recentes pour le royaume uni d un modele de la variation du chomage regional d apres thirlwall a partir des resultats principaux il s avere que la structure industrialo regionale ne cesse de jouer un role cle dans la determination de la variation du

imperfect information and the theory of government intervention in farm credit markets this paper describes some possible economic motivations for government intervention in farm credit markets these motivations are made possible by explicit departures from the perfect information and complete market assumptions that underlie both the neoclassical competitive paradigm and the fundamental theorems of welfare economics to be more precise the analysis focuses on three types of asymmetric information between farmers and prospective outside investors both of whom are assumed to be risk neutral arguably the three informational asymmetries examined here represent natural departures from perfect markets in that unlike the unencumbered neoclassical model each elicits farmers optimal use of debt contracts rather than equity instruments or other contractual forms to raise investment capital despite their consistency with observed contractual choices all three of the models analyzed below yield free market equilibria that diverge from first best perfect information outcomes given the inefficiency of these market equilibria the key question raised and discussed here is can government improve upon the derived competitive outcomes and if so how despite the enormity of the credit rationing literature only a few extant studies address this question in models that are consistent with debt contracts among them are demeza and webb 1987 1988 1989 and innes 1988 which focus on the third type of informational asymmetry considered below the other two information structures posited in this paper have been studied in several analyses of credit markets but with attention focused on positive attributes of the unfettered competitive equilibrium rather than on prospective implications for welfare enhancing government intervention in what follows th s literature is surveyed and for the first two information structures some new policy results a e presented a critical discussion of the paper s limitations concludes the article

the dynamics of regional unemployment in the uk 1974 89 this paper investigates the relationship between regional and national unemployment for the uk for the period 1974 1989 this problem is approached by using the time series methods of cointegration and causality tests the main conclusions are that regional and national unemployment are not as closely related as might have been supposed although any causation may as previously assumed run from the national to the regional level some regions are seen to be changing their position in the hierarchy of relative regional unemployment while most retain their relative status

a theory of corporate capital structure and investment this article uses a general equilibrium framework to explore the origins and limitations of financial intermediaries in the model investors have a generic lending technology that they can improve at a cost those who upgrade become intermediaries to exploit their advantage however conflicts with depositors will limit the banks market presence and they will only lend to moderately endowed firms while bondholders will finance cash rich corporations the article also analyzes the extent to which investors adopt the superior lending technique the nature of bank competition and how corporate and bank conditions affect interest rates and investment copyright 2004 oxford university press

the cyclical sensitivity of regional unemployment an assessment byers j d 1990 the cyclical sensitivity of regional unemployment an assessment reg studies 24 447 453 the slope coefficient obtained by regressing a regional unemployment rate on the national rate is often interpreted as a measure of the sensitivity of the regional economy to cyclical shocks in the national economy this paper discusses the procedures used to estimate cyclical sensitivity employing recent developments in econometric modelling of time series it is suggested the ols regressions actually reveal the equilibrium relationship between the two rather than the cyclical relationship byers j d 1990 la sensibilite cyclique du chomage regionale une evaluation reg studies 24 447 453 le coefficient de la pente calcule a partir d une regression du taux de chomage regional par rapport au taux national est souvent interprete comme mesure de la sensibilite de l economie regionale aux chocs cycliques dans l economie nationale cet article discute des demarches suivies afin d evaluer la

optimal bank capital with costly recapitalization we study optimal bank capital choice as a dynamic trade off between the opportunity cost of equity the loss of franchise value following a regulatory minimum capital violation and the cost of recapitalization we introduce a recapitalization delay that results in a strictly positive probability of capital adequacy violation we calibrate the model to bank accounting return data and evaluate the model s ability to explain observed bank capital ratios differences in return volatility explain a significant fraction of the cross sectional variation in bank capital ratios differences in the level of capital market imperfections across banks constitute a secondary explanation

monetary policy bank leverage and financial stability abstract this paper shows that with limited liability banks lever up excessively to finance new loans lower monetary policy rates can worsen or reduce these incentives depending on the size of the shock when equity financing is ruled out when this constrained is relaxed but the bank faces costly dividend adjustment lower monetary policy rates always worsen risk taking incentives and the effect is persistent the reason is that costly dividend adjustment lowers the opportunity cost of lending in this model capital requirements are closer to the source of the distortion and thus work better than loan to value caps in reducing excessive risk taking

a macroeconomic model with a financial sector this paper studies a macroeconomic model in which financial experts borrow from less productive agents we pursue four sets of results i the economy is prone to instability and occasionally enters volatile episodes as volatility spikes agents precautionary motive increases depressing prices even further log linear approximations fail to capture these non linear effects that can cause economies to be significantly depressed for long periods of time ii endogenous risk during volatile episodes increases asset price correlations iii financial experts impose a negative externality on each other and on the labor sector by not maintaining adequate capital cushion and funding structure iv while risk sharing within the financial sector through securitization and derivatives contracts reduces many inefficiencies it can also amlify systemic risks

moral hazard under commercial and universal banking many claims have been made about the potential benefits and the potential costs of adopting a system of universal banlcing in the united states we evaluate these claims using a model where there is a moral hazard problem between banks and borrowers a moral hazard problem between banks and a deposit insurer and a costly state verification problem under conditions we describe allowing banks to take equity positions in firms strengthens their ability to extract surplus and exacerbates problems of moral hazard the incentives of universal banks to take equity positions will often be strongest when these problems are most severe for many decades commercial banks in the united states have been prohibited from making equity investments in the firms they serve rather they are restricted to providing them with loans in the form essentially of debt contracts this longstanding regulatory restriction1 results in distinctly different roles for bank lenders and equity investors and has had important implications for the entire financial sector the american system of commercial banking presents a sharp contrast with the banking systems of some other countries most notably germany in which banks are permitted to take equity positions under such universal banking arrangements banks can make equity investments as well as loans vote their equity shares and even hold seats on the boards of directors of nonfinancial firms in general they can be actively involved in all aspects of firm decision malqing in germany the control rights the authors have benefitted from the helpful comments of doug diamond joe haubrich ross levine stan longhofer joao santos and an anonymous referee the views expressed herein are those of the authors and not necessarily those of the federal reserve bank of minneapolis or the federal reserve system 1 the key legislation which constrains u s banks equity investments is the glass steagall act of 1933 however a number of other laws also pertain to this issue particularly the bank holding company act of 1956 and its 1970 amendments incidentally there are some important exceptions to the equity investment prohibition in default situations banks are perrnitted to restructure loans into equity positions with the requirement of divestiture after a few years see james 1993 also bank holding companies are permitted to form separately capitalized venture capital subsidiaries for the expressed purpose of investing in start up enterprises john h boyd is a professor of finance in the carlson school of management at the university of minnesota and an adjunct consultant with the federal reserve bank of minneapolis chun chang is an associate professor of finance in the carlson school of management at the university of minnesota bruce d smith is a professor of economics at the university of texas ataustin

inequality measurement for ordered response health data because self reported health status srhs is an ordered response variable inequality measurement for srhs data requires a numerical scale for converting individual responses into a summary statistic the choice of scale is however problematic since small variations in the numerical scale may reverse the ordering of a given pair of distributions of srhs data in relation to conventional inequality indices such as the variance this paper introduces a parametric family of inequality indices founded on an inequality ordering proposed by allison and foster allison r a foster j 2004 measuring health inequalities using qualitative data journal of health economics 23 505 524 which satisfy a suitable invariance property with respect to the choice of numerical scale several key members of the parametric family are also derived and an empirical application using data from the swiss health survey illustrates the proposed methodology

leaning against the wind and the timing of monetary policy abstract if monetary policy is to aim also at financial stability how would it change to analyze this question this paper develops a general form framework financial stability objectives are shown to make monetary policy more aggressive in reaction to negative shocks cuts are deeper but shorter lived than otherwise by keeping cuts brief monetary policy tightens as soon as bank risk appetite heats up within this shorter time span cuts must then be deeper than otherwise to also achieve standard objectives finally we analyze how robust this result is to the presence of a bank regulatory tool and provide a parameterized example

the role of bank capital in the propagation of shocks abstract the recent financial turmoil has underlined the importance of analyzing the link between banks balance sheets and economic activity we develop a dynamic stochastic general equilibrium model in which bank capital mitigates an agency problem between banks and their creditors as a result the capital position of banks affects their ability to attract loanable funds and therefore influences the business cycle through a bank capital channel of transmission we find that the bank capital channel greatly amplifies and propagates the effects of technology shocks on output investment and inflation moreover bank capital shocks create sizeable declines in output and investment

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

monetary and macroprudential policy coordination among multiple equilibria abstract the notion of a tradeoff between output and financial stabilization is based on monetary macroprudential models with unique equilibria using a game theory setup this paper shows that multiple equilibria lead to qualitatively different results monetary and macroprudential authorities have tools that impose externalities on each other s objectives one of the tools macroprudential is coarse while the other monetary policy is unconstrained we find that this asymmetry always leads to multiple equilibria and show that under economically relevant conditions the authorities prefer different equilibria giving the unconstrained authority a weight on helping the constrained authority leaning against the wind now has unexpected effects the relation between this weight and the difficulty of coordinating is hump shaped and therefore a small degree of leaning worsens outcomes on both authorities objectives

financial crises and recapitalizations we develop a dynamic stochastic general equilibrium model with financial frictions on both financial intermediaries and goods producing firms since financial intermediaries are highly leveraged we show that the welfare gains from their recapitalization in response to large but rare net worth losses are as large as those from eliminating typical business cycle fluctuations we also find that these gains are increasing in the size of the net worth loss are larger when recapitalization funds are raised from the household rather than the real sector and can be larger when lower idiosyncratic risk leads to higher leverage

central bank independence and macro prudential regulation when a central bank is in charge of both price and financial stability a new time inconsistency problem may arise monetary policy may be abused to reduce the private sector s real debt burden after a financial shock materializes

bank net worth asset prices and economic activity abstract a dynamic general equilibrium model is proposed to study the interactions between the banking sector asset prices and aggregate economic activity a durable asset serves as a productive input and as a collateral for loans the propagation mechanism of a negative productivity shock is enhanced and prolonged through the interaction of credit constraints and asset prices where the bank loan and the investment are squeezed by a higher bank capital asset ratio for lending and at the same time a stricter collateral requirement for borrowing the model explains why banking crises often coincide with depression in the asset markets the results also bear policy implications for the debates over regulatory bank capital adequacy and credit control policies

inequality with ordinal data the standard theory of inequality measurement assumes that the equalisand is a cardinal quantity with known cardinalization however one often needs to make inequality comparisons where either the cardinalization is unknown or the underlying data are categorical we propose an alternative approach to inequality analysis that is rigorous has a natural interpretation and embeds both the ordinal data problem and the well known cardinal data problem we show how the approach can be applied to the inequality of happiness and of health status

costly monitoring loan contracts and equilibrium credit rationing this paper develops a model with asymmetrically informed agents and costly monitoring of loan contracts where an equilibrium can exhibit credit rationing borrowers are identical ex ante but some receive loans and others do not in contrast to existing credit rationing theories rationing does not occur here due to inflexible prices adverse selection or moral hazard optimizing behaviour produces a standard debt contract in equilibrium the aggregate quantity of loans and equilibrium interest rates respond differently depending on whether there is rationing in equilibrium

real interest rates leverage and bank risk taking do low interest rate environments lead to greater bank risk taking we show that when banks can adjust their capital structures reductions in real interest rates lead to greater leverage and higher risk for any downward sloping loan demand function however if the capital structure is fixed the effect depends on the degree of leverage following a decrease in interest rates well capitalized banks increase risk while highly levered banks may decrease it if loan demand is linear or concave further the capitalization cutoff depends on the degree of bank competition this effect therefore should vary across countries and over time

health nutrition and economic development the relationship between health and economic development is explored focusing on nutrition based health indicators the spotlight is placed on the inter related feedbacks between the influence of health on productivity on one hand and the influence of income on health status on the other disentangling causality in these relationships has preoccupied much of the literature we evaluate different empirical strategies that have been adopted and assess the results there is now a body of evidence based on careful empirical studies that demonstrates a causal relationship between health and labor productivity there is also evidence that at least among the very poor additional income is spent on improved nutrition there are two issues that have received little attention although we argue they are likely to be very important first measurement of health is discussed in detail evidence is presented on how taking into account differences in the extent of measurement error is critical for interpreting the impact of health on wages the same theme emerges in studies of the effect of income on health specifically calorie intake the key role of non linearities in these relationships is highlighted and we demonstrate that a good deal of the variation in estimates of income elasticities of demand for calories can be ascribed to the role of measurement and functional form authors

assessing deprivation with an ordinal variable theory and application to sanitation deprivation in bangladesh the challenges associated with poverty measurement with a cardinal variable have received due attention during the last four decades but there is a dearth of literature studying how to meaningfully assess poverty with an ordinal variable this paper first proposes a class of simple intuitive and policy relevant poverty measures for ordinal variables these measures are sensitive to depth of deprivations unlike the headcount ratio moreover under appropriate restrictions the measures ensure that priority is given to the poorest among the poor while targeting monitoring and evaluating poverty alleviation programs to assess the robustness of poverty comparisons to alternative choices of parameters various stochastic dominance tests are developed some of which are themselves novel contributions to the stochastic dominance literature the empirical illustration documenting changes in sanitation deprivation in bangladesh showcases the measures ability to identify instances in which overall sanitation deprivation improved while leaving the poorest behind

the macroeconomic implications of financial deregulation abstract this paper explores the possible macroeconomic consequences of financial deregulation in an institutional environment where deregulation raises risks in banking the central bank is supposed to maximize an objective function in which the probability of bank failure is an argument it is then shown that the usual tradeoffs between policy objectives imply that financial deregulation will lead to more interest rate smoothing than would otherwise take place and further that because of restricted entry into banking deregulation will call for some inflation the transition toward deregulation raises special problems which are likely to require a more gradual approach toward the stationary equilibrium

the cyclical sensitivity of regional employment and unemployment differentials gordon i r 1985 the cyclical sensitivity of regional employment and unemployment differentials reg studies 19 95 110 this paper examines inter regional variations in the cyclical sensitivity of employment and unemployment in the uk over the past thirty years it shows that the patterns for employment and for unemployment are quite different the cyclical sensitivity of unemployment is greatest in the high unemployment regions while that for employment is greatest in the more industrial regions it is argued that the primary reason for differences in the sensitivity of unemployment is not demand side factors but cyclical variations in labour mobility between regions lower mobility in periods of high unemployment reduces the effectiveness of inter regional supply adjustments and increases the variance of unemployment rates

defining health inequality why rawls succeeds where social welfare theory fails while there has been an important increase in methodological and empirical studies on health inequality not much has been written on the theoretical foundation of health inequality measurement we discuss several reasons why the classic welfare approach which is the foundation of income inequality analysis fails to provide a satisfactory foundation for health inequality analysis we propose an alternative approach which is more closely linked to the who concept of equity in health and is also consistent with the ethical principles espoused by rawls a theory of justice harvard university press cambridge ma 1971 this approach in its simplest form is shown to be closely related to the concentration curve when health and income are positively related thus the criteria presented in our paper provide an important theoretical foundation for empirical analysis using the concentration curve we explore the properties of these approaches by developing policy scenarios and examining how various ethical criteria affect government strategies for targeting health interventions

optimal contracts under costly state falsification we examine an exchange economy with two agents one risk neutral with a certain endowment and a second risk averse with a random endowment the realization of the endowment is public but can be falsified by the second agent at a cost for a broad class of falsification cost functions the optimal no falsification contract is noncontingent on a left hand interval and strictly increasing with a slope strictly less than one on a right hand interval under a mild further restriction optimal no falsification contracts are in addition piece wise linear optimal contracts may in general require falsifying the state but for a set of the highest endowment realizations there is no falsification we find simple conditions under which the optimal contract is a no falsification contract the model has applications that include financial insurance and employment contracts and tax policy

monetary policy and long run systemic risk taking as an extension to the literature on the risk taking channel of monetary policy this paper studies the existence of a systemic risk taking channel srtc in the eurozone through an original macroeconomic perspective based on causality measures because the srtc is effective after an incubation period we make a distinction between short and long term causality following the methodology proposed by dufour and taamouti 2010 we find that causality from monetary policy to systemic risk while not significant in the very short term robustly represents 75 to 100 of the total dependence between the two variables in the long run reverse causality is rejected systemic risk did not influence the policy of the european central bank before the global financial crisis however central banks must be aware that a too loose monetary policy stance may be conducive to a build up of systemic risk

optimal contracts when enforcement is a decision variable this paper analyzes choice theoretic costly enforcement in an intertemporal contracting model with a differentially informed investor and entrepreneur an intertemporal contract is modeled as a mechanism in which there is limited commitment to payment and enforcement decisions the goal of the analysis is to characterize the effect of choice theoretic costly enforcement on the structure of optimal contracts the paper shows that simple debt is the optimal contract when commitment is limited and costly enforcement is a decision variable theorem 1 in contrast stochastic contracts are optimal when agents can commit to the ex ante optimal decisions theorem 2 the paper also shows that the costly state verification model can be viewed as a reduced form of an enforcement model in which agents choose payments and strategies as part of a perfect bayesian nash equilibrium

policy mandates and institutional architecture abstract the model developed in this paper examines the interaction between monetary and macroprudential policies in promoting macroeconomic stability highlighting the role of shocks and policy instruments the paper shows that assigning the mandates of monetary and financial stability to independent authorities enhances macroeconomic stability only when some level of coordination exists between policymakers and it is the dominant institutional arrangement when monetary stability is socially important instead when society values financial stability internalising the policy spillovers by assigning the two mandates to a single policymaker could become the dominant configuration depending on the model s parameter values

deposit insurance a reconsideration abstract this paper undertakes a simple general equilibrium analysis of the consequences of deposit insurance programs the way in which they are priced and the way in which they fund revenue shortfalls in our economy the central issue in analyzing deposit insurance is how the government will make up any fdic losses deposit insurance premia matter only in so far as they affect the level of implied fdic revenue shortfalls moreover local variations in the magnitude of fdic losses will generically be irrelevant for the determination of any equilibrium quantities that affect agent welfare however large enough changes in these losses can matter there is no presumption that keeping these shortfalls low is a good idea finally we show that multiple pareto ranked equilibria can be observed the potential for multiplicity of equilibria may depend on components of fdic policy our analysis provides counterexamples to the following propositions 1 actuarially fair pricing of deposit insurance is always desirable 2 implicit fdic subsidization of banks through deposit insurance is always undesirable 3 large fdic losses are necessarily symptomatic of a poorly designed deposit insurance system 4 risk based deposit insurance premia can easily be used to reduce moral hazard problems associated with deposit insurance provision

credit externalities macroeconomic effects and policy implications financial crises are often preceded by peri ods of credit expansion during which firms and households become increasingly vulnerable to a reversal in economic conditions when eco nomic conditions actually worsen financing constraints become tighter causing a deeper contraction of economic activity these events have led to policy proposals for preventing excessive borrowing during normal times if rational agents evaluate financing decisions from a privately optimal standpoint why would the debt level not be socially efficient the theoretical literature has offered an answer to this question based on a pecuniary externality that arises due to the presence of financial frictions private agents tend to under value net worth during a period of financial distress because they fail to internalize the fact that additional net worth would have positive spillovers on other agents balance sheets 1 as a result private agents borrow excessively the quantitative implications of these credit exter nalities however remain largely unknown in particular these key questions have not been addressed

what can we learn from the implementation of monetary and macroprudential policies a systematic literature review the emergence of macroprudential policies implemented by central banks as a means of promoting financial stability has raised many questions regarding the interaction between monetary and macroprudential policies given the limited number of studies available this paper sheds light on this issue by providing a critical and systematic review of the literature to this end we divide the theoretical and empirical studies into two broad channels of borrowers consisting of the cost of funds and the collateral constraint and financial intermediaries consisting of risk taking and payment systems in spite of the existing ambiguity surrounding coordination issues between monetary and macroprudential policies it is argued that monetary policy alone is not sufficient to maintain macroeconomic and financial stability hence macroprudential policies are needed to supplement monetary in addition we find that the role of the exchange rate is critical in the implementation of monetary and macroprudential policies in emerging markets while volatile capital flows pose another challenge in so far as how the arrangement of monetary and macroprudential policies varies across countries key theoretical and policy implications have been identified

some evidence on the empirical significance of credit rationing this paper examines the credit rationing debate using detailed contract information on over one million commercial bank loans from 1977 to 1988 while commercial loan rates are sticky consistent with rationing this stickiness varies with loan contract terms in ways that are not predicted by equilibrium credit rationing theory in addition the proportion of new loans issued under commitment does not increase significantly when credit markets are tight despite the fact that borrowers without commitments can be rationed whereas commitment borrowers are contractually insulated from rationing overall the data suggest that equilibrium rationing is not a significant macroeconomic phenomenon

bank capital and uncertainty abstract financial frictions in raising external finance can induce banks to self insure against future shocks through holding more bank capital as uncertainty about future losses increases the above reasoning implies that they would choose to increase their capital position this paper tests this hypothesis in a dataset with u s commercial banks by exploiting a cross sectional variation in uncertainty to explain the distribution of bank capital ratios i find statistically significant and robust evidence in support of a self insurance mechanism a counterfactual experiment suggests that a decline in uncertainty to its lowest level generates an average reduction in bank capital ratios of up to 2 percentage points furthermore uncertainty explains on average about half of banks regulatory capital buffers

the relationship between regional and national unemployment an important issue in the analysis of regional unemployment is whether movements in regional unemployment rates reflect the impact of region specific shocks or shocks affecting the entire economy previous studies have examined this problem by considering how the regional rates move in relation to the national unemployment rate however it has to be remembered that the national rate is merely a weighted average of the regional rates in this paper we show that misleading correlation or regression results are likely to be generated by such models and that the problem can best be avoided by utilizing available information about the interactions between the regional unemployment rates directly rather than their relationship to the national rate the theoretical arguments are illustrated with simulation experiments and as a practical example we consider the relationship between regional and national unemployment in australia une question cle quant a l analyse du chomage regional c est de savoir si oui ou n