commodity prices policy target or information variable note the relationship between growth of the monetary aggregates and growth of nominal gnp has become less dependable in the 1980s deposit deregulation and large fluctuations in interest rates have produced sharp changes in the income velocity of money these velocity shifts have at times caused the federal reserve to miss or modify its money growth ranges because of the undependable relationship between money growth and economic activity some policymakers and economic analysts have argued that the federal reserve should pay more attention to commodity price fluctuations this paper examines the proper role for commodity prices in the formation of monetary policy

group incentive compatibility in a market with indivisible goods abstract in a market where each trader has one unit of an indivisible good there are procedures for exchanging goods which result in competitive allocations one of these procedures the top trading cycle has the property that it is in each trader s best interest to report his true preferences over the set of goods this note shows that no subset of traders can misrepresent their preferences and improve the allocation for all members of the subset additionally if there are no indifferences in the preferences then some traders in a subset that misrepresents preferences do worse

efficient resource allocation on the basis of priorities many institutions allocate resources by non market mechanisms based on priorities in this paper we introduce a model of resource allocation on the basis of priorities and address the following questions is it possible to allocate resources on the basis of any priority structure if yes when can we do this pareto efficiently without creating incentives for manipulation and consistently across different groups of agents and resource levels we adopt a basic indivisible objects model with a finite number of object types and a finite quota of goods of each type some interesting examples are the determination of access to education allocation of graduate houses offices or tasks agents are assumed to have strict preferences over object types and remaining unassigned an assignment is an allocation of the objects to the agents such that every agent receives at most one object a rule associates an assignment to each preference profile we formalize a priority structure to be a collection of strict priority rankings of individuals indexed by the object types where i a j would be read as i has higher priority for object a than j we assume that the priority structure is exogenously fixed and allow the preferences of the agents to vary a rule is said to violate a priority of i for a if there is a preference profile under which i envies j who is assigned a and publication information econometrica 70 6 november 2002 2489 2497 the copyright to this article is held by the econometric society http www econometricsociety org it may be downloaded printed and reproduced only for personal or classroom use absolutely no downloading or copying may be done for or on behalf of any for profit commercial firm or other commercial purpose without the explicit permission of the econometric society for this purpose contact julie p gordon executive director of the society at jpg northwestern edu i would like to thank faruk gul wolfgang pesendorfer the co editor the four anonymous referees and the participants of the micro theory lunch seminar in princeton university for their comments and suggestions

a note on the causality between export and productivity abstract in this paper we re examine the export led growth hypothesis through testing granger causality from exports to labor productivity using the methodology developed in toda and yamamoto 1995

pricing risk adjusted deposit insurance an option based model this paper presents a methodology for arriving at empirical estimates of deposit insurance premiums from market data by using isomorphic relationships betweeen equity and a call option and insurance and a put option the data utilizes the market value of equity to solve for the asset value and its volatility market perceptions of fdic bailout policies are explicitly modeled so as to eliminate the bias in inverted values of assets and their volatility sensitivity analyses are performed to show that rank orderings based on premiums are robust to changes in specification thus facilitating allocation of aggregate premium across banks while economists have long argued in favor of risk adjusted deposit insurance as both more equitable and more efficient than the current system of flatrate premiums various recent developments have further contributed to an increasing dissatisfaction with the current system first both the banking industry and the government seem to be tending to the view that deregulation of the banking industry would be necessary in order to meet more sophisticated future demands on the industry as well as desirable as a policy means of stimulating greater competition among banks moreover a sudden rise in the incidence of bank failures 1 and the vulnerability of the u s banks to the socalled international debt crisis have served to bring to the fore concern about the health of the banking industry in the absence of deposit insurance riskier banks will be able to attract deposits only at higher rates and these higher costs of funding serve as built in market regulated incentives to limit excessive risk taking by banks as introduction of deposit insurance makes deposits equally risk free across banks these incentives disappear and regulation and close supervision of the banking industry must necessarily replace them as deterrents to excessive risk taking thus when insurance is offered at a flat premium regulation is designed to ensure that the risk posed to the insurer both asset and financial risk is appropriately uniform

strategy proof exchange we consider the allocation of goods in exchange economies with a finite number of agents who may have private information about their preferences in such a setting standard allocation rules such as walrasian equilibria or rational expectations equilibria are not compatible with individual incentives we characterize the set of allocation rules which are incentive compatible or in other words the set of strategy proof social choice functions social choice functions which are strategy proof are those which can be obtained from trading according to a finite number of pre specified proportions the number of proportions which can be accommodated is proportional to the number of agents such rules are necessarily inefficient even in the limit as the economy grows

is the export led growth hypothesis valid for canada empirical evidence linking exports to economic growth has been mixed and inconclusive this study re examines the export led growth elg hypothesis for canada by testing for granger causality from exports to national output growth using vector error correction models vecm and the augmented vector autoregressive var methodology developed in toda and yamamoto 1995 application of recent developments in time series modelling and the inclusion of relevant variables omitted in previous studies help to clarify the contradictory results from prior studies on the canadian economy the empirical results suggest that a long run steady state exists among the model s six variables and that granger causal flow is unidirectional from real exports to real gdp jel classification f43 c32 est ce que l hypothese de la croissance engendree par les exportations est valide pour le canada les resultats empiriques des etudes tentant de montrer le lien entre les exportations et la croissance economique sont mixtes et ne contiennent pas de resultats concluants cet article re examine l hypothese dans le cas du canada en testant la causalitea la granger pour les exportations et la croissance du produit national en utilisant les modeles vecm et la methodologie var developpes par toda et yamamoto 1995 l application de certains developpements recents dans l analyse des series chronologiques et l inclusion de variables pertinentes omises dans les etudes anterieures aident a mettre de l ordre dans les resultats contradictoires des etudes anterieures portant sur l economie canadienne les resultats empiriques suggerent qu un regime permanent existe entre les six variables du modele et que la causalitea la granger est unidirectionnelle des exportations reelles vers le pib reel

a critical review of contagion risk in banking the recent financial crisis has focused the attention of scholars and policymakers on how to improve financial stability through better macro prudential regulation and supervision in this paper we compare the existing theoretical and empirical literature on contagion through the banking system it is argued that the structure of the interbank market the size of banks the linkages among them the level of correlation of their investments and the transparency of the regulator are key factors in determining the possibility of contagion we discuss the different findings and present avenues for future research

comparative statics in matching markets abstract this paper studies the comparative statics of adding agents to matching markets that generalize the marriage and college admissions markets of d gale and l shapley amer math monthly 69 1962 9 15 it is shown for the wide class of matching markets studied by a roth econometrica 52 1984 47 57 that adding an agent to one side of the market weakens the competitive positions of the other agents on that side and strengthens the competitive positions of the agents on the other side

on passive money there are two ways in which the quantity of money may be included in a general equilibrium system as a datum whose value is fixed exogenously or as an unknown whose value is determined by the equilibrium system itself let them be called active money and passive money respectively current monetary theory uses the first approach the ricardo walraskeynes tradition in general equilibrium models is clearly of the activemoney variety this is also true of the more contemporary versions such as patinkin s well known system 1965 apart from the main stream of thought however a number of analyses exist which imply passive money the gold standard model as it is usually expounded belongs to this class the price of gold in terms of money is given while the stock of money is endogenously determined by the set of equilibrium conditions the form in which the quantity of money adapts to its equilibrium level differs according to the institutional mechanism convergence is assured through monetization and demonetization of gold in the pure goldcurrency system and through convertibility of notes into gold and vice versa in the gold standard system with paper money in either case the money supply is allowed to conform to its equilibrium volume this kind of monetary system in which the money price of a certain product or commodity is a datum and the quantity of money a dependent magnitude may be denoted in general as a commodity standard

deposit insurance reform what are the issues and what needs to be fixed abstract the current problems in the commercial banking industry have led to widespread calls for reform of the deposit insurance contract on the grounds that it promotes moral hazard we review the empirical evidence for the significance of moral hazard as an important cause of the present crisis we then evaluate various reform proposals grouped into two broad classes proposals that seek to impose greater discipline on bank stockholders and proposals to increase the disciplinary role of bank debtholders finally we identify some issues that have received inadequate attention in the literature on bank regulation

a revisitation of the savings growth nexus in mexico by employing tests for long term causality contrary to sinha and sinha economic letters 1998 in mexico savings is shown to precede growth this paper further explores the complex dynamics of this inter relationship to lend clarity to this nexus

the limitations of market value accounting and a more realistic alternative abstract market value accounting mva might improve market and regulatory discipline on financial institutions unfortunately there are serious conceptual measurement and incentive problems with implementing mva that have not received significant attention these problems are suggested by the theory of asymmetric information and the role intermediaries play in solving information and monitoring problems after analyzing the problems with mva we develop an alternative approach that applies mva principles where they are most feasible and uses a statistical procedure where asymmetric information problems make mva particularly problematic an empirical analysis suggests that this procedure may substantially improve the distribution of regulatory discipline

the role of commodity prices in formulating monetary policy commodity prices often provide signals about the future direction of the economy especially inflation it has been argued therefore that the information in commodity prices should be used in formulating monetary policy this paper investigates whether a systematic monetary policy response to contemporaneous commodity price shocks would have helped stabilize the postwar u s economy the authors findings suggest that responding to unexpected commodity price movements would have lowered the average rate of inflation and reduced its variability while the path of real growth would be relatively unchanged copyright 1991 by mit press

strategy proof assignment on the full preference domain we consider the problem of efficiently allocating several indivisible objects between agents who are to receive at most one object and whose preferences are private information we examine this standard assignment problem from the perspective of mechanism design giving up the usual assumption of linear preferences and instead using a full preference domain with indifferences permitted we characterize two classes of mechanisms i bi polar serially dictatorial rules by essential single valuedness pareto indifference strategy proofness and non bossiness and ii all selections from bi polar serially dictatorial rules by single valuedness efficiency strategy proofness and weak non bossiness we compare the outcomes from the bi polar serially dictatorial rules with the outcomes obtained using a market based approach namely the core of the market we show that all strongly efficient outcomes in the core can be generated using serially dictatorial rules moreover we argue that serially dictatorial rules have an advantage over the market based approach in that they yield strongly efficient solutions for all preference profiles making it possible to use randomization to restore equity when preferences are private information this type of ex ante equity cannot be implemented using the market based approach

risk shifting incentives of depository institutions a new perspective on federal deposit insurance reform abstract we characterize the risk shifting incentives of a depository institution as arising fundamentally from the existence of limited liability and the associated convex payoff to equity holders this risk incentive feature is unchanged by deposits being insured and hence excessive risk taking by depository institutions is not solely attributable to the flat rate insurance premium consequently the incentive problem cannot be resolved through a risk based insurance premium contrary to the prevailing view we propose a solution that eliminates risk shifting through an optimal tax structure and specify a corresponding insurance premium that is revenue neutral from the social planner s regulator s standpoint the solution is derived in the context of a social objective function that trades off the benefits of liquidity services by banks and the unique informational role of bank loans with the costs of investment distortions engendered by risk shifting

appearance and reality in deposit insurance the case for reform abstract this paper argues that the staffs and explicit insurance reserves of u s deposit insurers have been overwhelmed by de facto financial disaster the full costs of financing federal deposit insurance have become enormous and increasingly inequitable in distribution to reduce voluntary risk taking authorities must reprice and redesign the system of de facto deposit insurance coverage six complementary reforms are discussed 1 accounting for institutional assets liabilities and net worth at market value 2 enhancing opportunities for deposit insurers to manage their risk exposure 3 recalibrating insurance coverages 4 imposing risk rated premiums 5 mixed private and governmental competition in deposit insurance and 6 constraining insurance agency and federal reserve authority to bail out insolvent institutions

is corruption grease grit or a gamble corruption increases variance of productivity across countries the effect of corruption on economic growth has attracted interest in empirical development economics the conventional view of corruption as impediment for growth has been challenged by the grease on the wheels hypothesis we take a new perspective on the issue and suggest corruption as macro risk referred to as a gamble hypothesis using cross country data and two alternative indicators of corruption we find corruption to be a significant driver of heteroscedasticity in total productivity this supports the new gamble hypothesis we also note some misleading interpretations in the previously published frontier applications to avoid these shortcomings we apply a flexible semi nonparametric estimator

causality between exports productivity and financial support in european union agriculture morley b and morgan w causality between exports productivity and financial support in european union agriculture regional studies the aim of this paper is to investigate the causal relationship between exports and productivity and exports and agricultural support within the european union using the autoregressive distributed lag ardl approach to co integration and error correction models evidence is found of exports within the european union being determined by support in ireland and france as well as gains in productivity contributing to export growth in germany and the uk this finding may help explain why some countries within the european union such as france have large agricultural trade surpluses whilst others run large deficits morley b et morgan w les rapports de causalite entre les exportations la productivite et le soutien financier dans l agriculture de l eu regional studies cet article cherche a examiner les rapports de causalite entre les exportations et la productivite et

collateral loan quality and bank risk abstract most commercial loans are made on a secured basis yet little is known about the relationship between collateral and credit risk several theoretical studies find that when borrowers have private information about risk the lowest risk borrowers tend to pledge collateral in contrast conventional wisdom holds that when risk is observable the highest risk borrowers tend to pledge collateral an additional issue is whether secured loans as opposed to secured borrowers tend to be safer or riskier than unsecured loans empirical evidence presented here strongly suggests that collateral is most often associated with riskier borrowers riskier loans and riskier banks

the influence of energy consumption of china on its real gdp from aggregated and disaggregated viewpoints abstract this paper investigated the causal relationship between energy consumption and gross domestic product gdp in china at both aggregated and disaggregated levels during the period of 1978 2009 by using a modified version of the granger 1969 causality test proposed by toda and yamamoto 1995 within a multivariate framework the empirical results suggested the existence of a negative bi directional granger causality running from aggregated energy consumption to real gdp at disaggregated level of energy consumption the results were complicated for coal empirical findings suggested that there was a negative bi directional granger causality running from coal consumption to real gdp however for oil and gas empirical findings suggested a positive bi directional granger causality running from oil as well as gas consumption to real gdp though these results supported the feedback hypothesis the negative relationship might be attributed to the growing economy production shifting towards less energy intensive sectors and excessive energy consumption in relatively unproductive sectors the results indicated that policies with reducing aggregated energy consumption and promoting energy conservation may boost china s economic growth

the s l debacle public policy lessons for bank and thrift regulation this book describes the period of failures of savings and loan associations and sets out a program of policies to prevent future debacles it explains the regulatory actions and inactions that created the incentives for large numbers of thrifts to make excessively risky and ill conceived and in some cases fraudulent and criminal investments it describes the failure of the accounting system to provide adequate information to regulators and in many cases even to the managers of the thrifts themselves concerning the health and riskiness of individual thrifts it also discusses how the regulatory system that had been conceived in an earlier and highly regulated era was overwhelmed in the deregulated environment of the early 1980s it shows how the reforms that were made in response to the growing crisis were too little and too late and finally it offers a set of policy reforms that could prevent future crises in the savings and loan industry this work should be of interest to political and financial economists

dynamics of oil price precious metal prices and exchange rate this study examines the co movements and information transmission among the spot prices of four precious metals gold silver platinum and palladium oil price and the us dollar euro exchange rate we find evidence of a weak long run equilibrium relationship but strong feedbacks in the short run the spot precious metal markets respond significantly but temporarily to a shock in any of the prices of the other metal prices and the exchange rate furthermore we discover some evidence of market overreactions in the palladium and platinum cases as well as in the exchange rate market in conclusion whether there are overreactions and re adjustments or not investors may diversify at least a portion of the risk away by investing in precious metals oil and the euro policy implications are provided

deposit insurance and the discount window pricing under asymmetric information the risk sensitive pricing of deposit insurance and the discount window is determined in an environment where banks have private information concerning their financial conditions the two facilities are managed jointly an incentive compatible policy is designed such that banks choice of terms at which they can obtain insurance and access to discount window credit will reveal their asset quality the function of the discount window is to be a risk neutral lender of last resort to banks in a market dominated by risk averse depositors the need to regulate banks is commonly linked to the risk independent pricing of deposit insurance in that it provides banks with an incentive to increase their risk taking activities 1 critics of the present system have long advocated risk sensitive deposit insurance premiums and a literature is emerging that examines the variety of such pricing schemes 2 this literature typically assumes that the public insuring agency has the same information as the bank concerning the quality of the bank s assets this is both implausible and potentially misleading the bank normally has superior information concerning its assets a pricing policy that ignores this informational asymmetry is likely to provide banks with similar risk taking incentives that is associated with the current riskinsensitive pricing arrangement kane 6 p 275 for example appreciates this aspect of the problem i t is necessary not only to reprice but also to redesign the existing system the fdic and fslic must develop incentive compatible my emphasis insurance contracts and price them fairly contractual incentives must be established that would allow a low risk institution to lower its premiums by communicating to the insurance agency what its own managers know about the institution s own exposure therefore as kane argues a redesigned insurance system is needed that would provide incentives to the banks to truthfully reveal the necessary information and thereby facilitate the efficient pricing of the risk shifted to the public insurer a variety of pricing policies that involve a bank s choice of capital or asset liability composition

exports imports and economic growth in south korea and japan a tale of two economies this article investigates the relationship between exports imports and economic growth for south korea and japan by constructing a vector autoregression var model causality is examined between real gross domestic product gdp real exports and real imports several principal results emerge from the empirical work first the three variables are cointegrated for both countries implying that a long run steady state exists second there is evidence of bidirectional causality between imports and economic growth for both countries finally japan seems to experience export led growth while gdp growth in south korea has a negative effect on export growth these contrasting findings could result from export goods in japan exhibiting greater nonprice competitive aspects although their success fails to trigger a virtuous circle since growth fails to lead to increased exports while for south korea output growth leads to a decrease in export growth suggesting a strong domestic market

considerations of cost trade offs in insurance solvency surveillance policy abstract we propose a process for identifying potentially insolvent insurers on a cost effective basis a loss cost function is developed such that the effectiveness of monitoring is maximized relative to a cost constraint the loss cost function is supported by a model that provides a rank ordering of financial institutions according to their probability of insolvency when tested against a full sample of property liability insurance companies the procedure provides information critical to maximizing the effectiveness of regulatory resources available for solvency surveillance and performs well as a predictor of insolvency likewise the rank ordering of insurers overcomes an estimation problem critical to establishing risk adjusted guaranty assessments

house allocation with transfers we consider the shapley scarf house allocation problem where monetary transfers are allowed we characterize the class of mechanisms that are strategy proof ex post individually rational ex post budget balanced and collusion proof in these mechanisms the price of each object is fixed in advance and the objects are reallocated according to the unique core assignment of the shapley scarf economy associated with the prices the special case in which all prices are zero is the core mechanism studied by shapley and scarf our mechanisms are compelling alternatives to the groves mechanisms which satisfy neither budget balance nor our condition of collusion proofness journal of economic literature classification numbers c71 c78 d71 d78 d89

variable rate deposit insurance a re examination abstract this paper investigates the impact of variable rate deposit insurance on the financial and real sectors of the economy and its role as an absorber of bankruptcy risk within these sectors a variable rate system raises the cost of funds to the real sector and increases probability of bankruptcy of the borrowing firms when such bankruptcies occur society experiences a dead weight loss we argue that appropriate deposit insurance pricing must weigh the social costs connected with both financial firm failure and real sector bankruptcy

the effects of shifts in monetary policy and reserve accounting regimes on bank reserve management behavior in the federal funds market abstract this paper looks at the effects on fed fund rates and fed fund purchasing behavior of large banks resulting from i the 1982 regime switch from non borrowed to borrowed reserve targeting by the fed and ii the 1984 switch from lagged to almost contemporaneous reserve accounting cra whether we analyse changes in the interest rate or quantity dimensions the shift in monetary policy targets appeared to have had a more profound effect on the market for bank reserves than the shift in reserve accounting regime these results therefore tend to support the contention that a shift to cra by itself will have little effect on bank reserve management behavior unless combined with its logical counterpart a total reserves target

energy consumption and economic growth a causality analysis for greece abstract this paper investigates the causal relationship between aggregated and disaggregated levels of energy consumption and economic growth for greece for the period 1960 2006 through the application of a later development in the methodology of time series proposed by toda and yamamoto 1995 at aggregated levels of energy consumption empirical findings suggest the presence of a uni directional causal relationship running from total energy consumption to real gdp at disaggregated levels empirical evidence suggests that there is a bi directional causal relationship between industrial and residential energy consumption to real gdp but this is not the case for the transport energy consumption with causal relationship being identified in neither direction the importance of these findings lies on their policy implications and their adoption on structural policies affecting energy consumption in greece suggesting that in order to address energy import dependence and environmental concerns without hindering economic growth emphasis should be put on the demand side and energy efficiency improvements

moral hazard and optimal commodity taxation abstract this paper demonstrates that in an economy with moral hazard and more than one commodity competitive equilibrium is not constrained efficient to correct the market failure differential commodity taxation is necessary a general optimal tax formula is derived and special cases of is discussed

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

strategyproof assignment by hierarchical exchange we give a characterization of the set of group strategyproof pareto optimal and reallocation proof allocation rules for the assignment problem where individuals are assigned at most one indivisible object without any medium of exchange although there are no property rights in the model the rules satisfying the above criteria imitate a trading procedure with individual endowments in which individuals exchange objects from their hierarchically determined endowment sets in an iterative manner in particular these assignment rules generalize gale s top trading cycle procedure the classical rule for the model in which each individual owns an indivisible good

is there a role for commodity prices in the design of monetary policy some empirical the consumer price index in the united states follows a non trend stationary stochastic process that describes the index as drifting randomly upward without bound monetarists have long pointed to similar properties in the time series of monetary aggregates as the source of this incipient inflation their solution to this problem is close adherence by the central bank to targets for a monetary or reserve aggregate that correspond to slow and steady monetary growth with any periods of excessive monetary growth subsequently offset this would produce monetary series that are trend stationary if the demand for money is reasonably stable price series would also become trend stationary and for properly chosen targets the price level would be bounded with a mean inflation rate of zero

strategy proofness and essentially single valued cores in this paper we search for solutions to various classes of allocation problems we hand results pertaining to housing markets are much more encouraging roth 1982b shows that in the context of housing markets the core correspondence which is shown to be single valued by roth and postlewaite 1977 is strategy proof moreover ma 1994 shows that it is the only solution that is pareto efficient individually rational and strategy proof

the valuation of fdic deposit insurance using option pricing estimates when congress set the premium rate for fdic deposit insurance in the banking act of 1935 which authorized a permanent federal insurance system neither experience nor theory could offer much guidance regarding an appropriate fee structure although rates have since been periodically revised the fdic has yet to attempt to set the insurance rate at a ifair level that is a level equal to administrative costs plus the ex ante value of the insurance such a premium is the rate that would be charged by competitive private insurers however7 the garn st germain act of 1982 directed the fdic to consider the feasibility of a risk based premium structure in response the fdic has suggested a trial system in which each insured bank will be placed in one of three risk classes based on credit and interest rate risk relative to capital and a premium rate will be assigned to each group those rates will be determined in part by the loss experience of the entire banking system fdic 1983 another approach to the determination of the appropriate insurance premium has been offered by merton 1977 who suggested using the analogous relationship between deposit guarantees and put options to value fdic insurance in this paper we follow merton s suggestion and calculate bank specific estimates of the proper premium for deposit insurance for the banks in our sample we find that fdic rates greatly exceed estimates of the fair value of the insurance derived from the blackscholes 1972 option pricing model

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

externalities in economies with imperfect information and incomplete markets this paper presents a simple general framework for analyzing externalities in economies with incomplete markets and imperfect infonnation by identifying the pecuniary effects of these externalities that net out the paper simplifies the problem of determining when tax interventions are pareto improving the approach indicates that such tax interventions almost always exist and that equilibria in situations of imperfect information are rarely constrained pareto optima it can also lead to simple tests based on readily observable indicators of the efficacy of particular tax policies in situations involving adverse selection signaling moral hazard incomplete contingent claims markets and queue rationing equilibria traditional discussions of externalities have emphasized the distinction between technological externalities in which the action of one individual or firm directly affects the utility or profit ofanother and pecuniary externalities in which one individual s or firm s actions affect another only through effects on prices while the presence of technological externalities imply in general that a competitive equilibrium may not be pareto efficient pecuniary externalities hy themselves are not a source of inefficiency the fact that prices change has of course important consequences there are both distributional and allocational effects but the distribution effects net out gains for example hy firms whose prices increase are precisely offset by losses e g to individuals who must pay higher prices and there are no welfare losses from the allocation effects as long as the price changes involved are small if firms are maximizing profits and individuals are maximizing utility both facing prices that correctly refiect opportunity costs then standard envelope theorem arguments imply that changes in profits or utility induced by changes in allocations resulting from any small change in prices are negligible

exchange of indivisible goods and indifferences the top trading absorbing sets mechanisms there is a wide range of economic problems that involve the exchange of indivisible goods with no monetary transfers starting from the housing market model of the seminal paper by shapley and scarf 1974 to problems such as the kidney exchange or the school choice problem the classical solution to many of these models is to apply a mechanism called top trading cycles attributed to david gale which satisfies good properties for the case of strict preferences in this paper we propose a family of mechanisms called top trading absorbing sets mechanisms which generalize the top trading cycles to the general case in which individuals are allowed to report indifferences while preserving a maximal possible set of its desirable properties

strategy proofness and the core in house allocation problems abstract we study house allocation problems introduced by l shapley and h scarf 1974 j math econ 1 23 28 we prove that a mechanism a social choice function is individually rational anonymous strategy proof and nonbossy but not necessarily pareto efficient if and only if it is either the core mechanism or the no trade mechanism where the no trade mechanism is the one that selects the initial allocation for each profile of preferences this result confirms the intuition that even if we are willing to accept inefficiency there exists no interesting strategy proof mechanism other than the core mechanism journal of economic literature classification numbers c71 c78 d71 d78 d89

the informational role of commodity prices in formulating monetary policy a reexamination abstract this paper reexamines the issue of whether commodity prices provide useful information for formulating monetary policy through the application of a recent development in time series methodology developed by toda and yamamoto j econometrics 66 1995 225 250 we found that commodity prices signal the future direction of the economy

market discipline and bank subordinated debt note a lengthy literature in banking has addressed the question of whether the market prices of liabilities respond to individual bank risk taking activity that is whether any market disciplines exists however despite the obvious importance of this question the current record has led to no consensus on the issue results have been contradictory in this journal alone hannan and hanweck 1988 conclude that the market does extract at least some price for risk taking while avery belton and goldberg 1988 find no such evidence in this study we argue that this line of inquiry has a serious f law in that it fails to use theoretical models of bank instrument valuation to determine the appropriate testing of market discipline therefore the empirical models have lacked the necessary exactness to isolate the appropriate null hypotheses to redress this shortcoming and advance the methodology of this area of the literature we use a pricing model which comes to the banking area from the options pricing literature to look at the yield spread on bank liabilities using this model it is clear that the value of large uninsured bank liabilities cannot be described as a linear monotonic function of risk moreover current bank regulation affects the assumed role risk measures play in the pricing of such debt instruments both of these complications mean that simple regressions are not likely to adequately address the relationship between the value of debt and underlying risk in the final section we empirically investigate the presence of market discipline using contingent claims pricing we find that accounting measures of bank risk still have little predictive value in explaining yield spreads and therefore offer little evidence of meaningful market discipline

optimal bank reorganization policies and the pricing of federal deposit insurance optimal dynamic regulatory policies for closing ailing banks and for deposit insurance premia are derived as functions of the rate of flow of bank deposits and interest rate on deposits the economy s risk free interest rate and the regulators bank audit administration costs under competitive conditions the threshold assets to deposits ratio below which a bank should be optimally closed is shown to be greater than or equal to one optimal deposit insurance premia and probabilities of bank closure are shown to be nondecreasing in the bank s risk on investment and nonincreasing in the bank s current assets to deposits ratio should regulatory agencies close reorganize an ailing federally insured financial institution if so when the recent record rate of failures of savings and loans associations s ls has renewed the urgency of this question the regulatory agencies are empowered but not required to reorganize financial institutions that are statutorily insolvent i e have zero or negative regulatory net worth recently regulators have in many instances permitted insolvent financial institutions to remain in operation 2 also while debating on the increase of the proposed funding of the federal deposit insurers the u s congress argued whether it would be desirable and if so when to close more s ls thus when regulators should close a troubled financial institution has become a major question of bank regulatory policy while the existing academic literature provides powerful insights into the structure and pricing of the insurers liability this literature offers very little guidance regarding the timing of bank reorganizations 3 indeed to the best of our knowledge the value of the federal

coalitional strategy proof house allocation abstract we consider house allocation without endowments we show that there is a unique maximal domain including all strict preferences on which efficiency and coalitional strategy proofness are compatible a preference relation belongs to the unique maximal domain if it is a strict descending ranking of houses to a certain house and indifference holds over it and the remaining houses we also show that on this domain mixed dictator pairwise exchange rules are the only rules satisfying efficiency and coalitional strategy proofness journal of economic literature classification numbers c78 d63 d71

option implied expectations in commodity markets and monetary policy abstract in this paper we estimate the dynamic interactions between option implied variance and skewness in agricultural commodity markets and monetary policy using a structural vector autoregressive svar framework we find that an expansionary contractionary monetary policy upwardly downwardly revises commodity markets expectations about the price and volatility path of agricultural products on the other hand our empirical analysis reveals that monetary policy does not have a systematic and timely response to sudden changes in option implied expectations of commodity investors in addition we provide empirical evidence showing the robust forecasting power of agricultural option implied information on monetary policy with r 2 values reaching almost 52

relative prices and money a vector autoregression on brazilian data recent data on brazilian agricultural prices industrial prices and money supply are analyzed in a vector autoregression the empirical findings show strong one way granger type causality from money supply to agricultural prices while feedback is observed between industrial prices and money supply under the usual monetarist ordering of contemporaneous innovation covariance agricultural prices do not adjust faster than industrial prices to a shock in the money supply

a reexamination of the over or under pricing of deposit insurance this study shows how fair deposit insurance premia can be calculated using data on bank stock prices interest rate movements and income and balance sheet accounts fair insurance premia are estimat ed under the alternative assumptions that the fdic provides either a limited term variable rate or unlimited term insurance cont ract to banks the paper s results suggest that for nearly all of the large commerical banks in the sample the actual insurance premium c harged by the fdic falls between the bounds of fair limited term and unlimited term insurance premia copyright 1987 by ohio state university press

top trading with fixed tie breaking in markets with indivisible goods abstract we study markets with indivisible goods where monetary compensations are not possible each individual is endowed with an object and a preference relation over all objects when preferences are strict gale s top trading cycles algorithm finds the unique core allocation when preferences are not necessarily strict we use an exogenous profile of tie breakers to resolve any ties in individuals preferences and apply gale s top trading cycles algorithm for the resulting profile of strict preferences we provide a foundation of these simple extensions of gale s top trading cycles algorithm from strict preferences to weak preferences we show that gale s top trading cycles algorithm with fixed tie breaking is characterized by individual rationality strategy proofness weak efficiency non bossiness and consistency our result supports the common practice in applications to break ties in weak preferences using some fixed exogenous criteria and then to use a good and simple rule for the resulting strict preferences

foreign direct investment and economic growth in less developed countries an empirical study of causality and mechanisms we examine the causality between foreign direct investment fdi and economic growth for 66 developing countries taking into account their interaction with exports and technological change time series analysis for each country is conducted based on a method introduced by toda and yamamoto 1995 for testing granger causality in the presence of nonstationary time series the main findings of this article are fdi causes growth in several of the developing countries but the mechanism through which this works differs across countries and reverse causality from growth to fdi exists for many countries

incentive compatibility in a market with indivisible goods abstract in a market in which each trader s initial endowment is one unit of an indivisible good there exists an incentive compatible procedure for reaching a competitive allocation this contrasts with some recent results for similar problems

testing the effect of investments in it and r d on labour productivity new method and evidence for indian firms abstract utilizing a micro level dataset of 900 firms for the period 2000 2016 from indian manufacturing this paper explores the effects of technological investments on labour productivity performance of firms by looking at investments in information technology it and research development r d the present study is the first to assess the role of it and r d jointly for indian manufacturing to control for transmission bias in production function estimation a gmm based one step control function estimator is applied we find large effects of both it and r d across various sub samples further our results imply that there is a complementarity between it and r d in generating labour productivity growth