inflation and the informativeness of prices this paper studies the welfare effects of the relative price variability arising from inflation if customers and suppliers form long term relationships prices have an informational role a potential customer uses current prices as signals of future prices inflation reduces the informativeness of current prices causing customers to make costly mistakes about which relationships to enter in addition the reduced informativeness of prices makes demand less price elastic thereby increasing markups both effects can be quantitatively significant at moderate inflation rates

federal reserve financial crisis lending programs and bank stock returns abstract we use an e garch model to estimate the wealth effects of federal reserve lending during the financial crisis to investment banks i banks too big to fail tbtf banks and traditional commercial banks borrowing from the term auction facility program has negative wealth effects for all banks and i banks in particular we also find that the market view of the liquidity programs changed across the sample sub periods i bank and tbtf bank borrowing from the discount window is initially viewed positively however continued use of the discount window and the term auction facility was generally though not universally viewed negatively commercial paper funding facility program participation is consistently positive only for traditional banks and programs that focus on the purchase of specific securities e g commercial paper to address specific problems also appear to primarily benefit traditional banks the inconsistency of results across the time periods of the crisis is telling as market participants struggled to discern what access to these programs meant

the behavior of prices and inflation an empirical analysis of disaggregat price data this paper analyzes the effects of inflation on the dispersion of prices as well as other aspects of price behavior using disaggregated data on prices of foodstuffs in israel during 1978 84 we find that the effect of expected inflation on intramarket price variability is stronger than the effect of unexpected inflation we show that even in times of high inflation price quotations are not trivially short and price changes are not synchronized across firms these facts taken together confirm that there is some staggering in the setting of prices we find that the distribution of real prices is far from being uniform as many menu cost based models assume or conclude in fact as inflation increases to very high levels this distribution is not even symmetric when the annual inflation rate reaches 130 percent there are equal chances of finding real prices above or below the market average but upward deviations in the real price are further away from zero than downward ones furthermore as the annu

discrete equilibrium price dispersion an explicit solution of an equilibrium model with price setting firms and searching customers makes possible a number of comparativestatics predictions about how cost differences among firms search costs of customers and taxes will affect the mean and variance of the distribution of market prices another implication of the model is that a firm s demand depends on the difference between its price and the average price in the market

price dispersion price flexibility and repeated purchasing this paper presents a search model in which consumers repeatedly purchase a commodity the repetition of purchases leads to the formation of implicit contracts with sellers which generate a kink in the demand curve facing each seller these kinks can generate equilibrium price dispersion under conditions where single purchase search models predict no price dispersion despite the kinks prices are at least partially flexible in that some and possibly all sellers change their prices in response to changes in production costs or demand dispersion de prix flexibilite des prix et achats repetes ce memoire presente un modele de recherche dans lequel les consommateurs font des achats repete s d un bien la repetition de l achat entraine la formation de contrats implicites avec les vendeurs ceci cree un pli dans la cedule de demande a laquelle chaque vendeur fait face ces plis peuvent engendrer une dispersion des prix d equilibre alors que le meme modele ne predirait aucune dispersion de prix en l absence d achats repet s malgre les plis les prix sont au moins partiellement flexibles puisque certains vendeurs tous peut re peuvent changer leurs prix en reponse a des changements dans les cofuts de production ou dans la demande

search sticky prices and inflation this paper examines equilibrium in a deflationary environment in a market with free entry where consumers search and firms set prices on individual units of the commodity prices attached to newly produced goods are continuously adjusted prices attached to previously produced goods can only be changed at a cost deflation cuts into the market power created by the need to search for the good thus consumers welfare is inverse u shaped in deflation

quantitative easing a sceptical survey evaluation of quantitative easing qe is difficult as it is only used in response to severe and unusual economic difficulties despite this we argue that two main conclusions can be drawn from a sceptical reading of the evidence first large scale asset purchases reduce government bond rates especially at the longer end of the yield curve however this effect may be temporary and is small if bond rates are already low while initial waves of qe are more effective than subsequent programs second qe appears to have been effective in late 2008 and 2009 preventing even larger declines in output and inflation than were experienced we argue that the literature is limited relying on similar methodologies and largely originating in central banks exploration of alternative approaches to qe would be useful in widening an evidence base that is currently too narrow

search costs sticky prices and markups this article investigates how search costs price stickiness and product durability influence the impact of inflation on firm markups we provide evidence that each of these three factors plays an independent role in influencing the responsiveness of markups to inflation although we find that the direct effect of inflation on markups is negative offsetting positive influences of inflation on markups arise in industries that produce durable experience goods with flexible prices thus our results indicate that markups of industries producing nondurable search goods with sticky prices tend to experience unambiguously negative impacts from inflation

the turn of the year in money markets tests of the risk shifting window dressing and preferred habitat hypotheses musto 1997 identifies a turn of the year effect in the commercial paper market and offers risk shifting window dressing as an explanation we revisit this market with different methods and find strong evidence rejecting the risk shifting hypothesis we extend our analysis to other private issue money market instruments and find similar results we find further corroborating evidence in the 1 month t bill market and aggregate demand deposit data our results are consistent with a year end preferred habitat for liquidity associated with year end cash flow obligations

a look inside amlf what traded and who benefited abstract the federal reserve s amlf program was designed to provide liquidity to money market funds mmfs between september 2008 and may 2009 the program made 217 billion in non recourse loans to depository institutions and bank holding companies to purchase asset backed commercial paper from mmfs jp morgan and state street dominated the program accounting for over 90 of all loans made our analysis suggests that jp morgan exhibited more self dealing behavior than state street we find that jp morgan and state street earned economically and statistically significant cumulative returns of 2 28 and 2 49 respectively over the first seven days of the program after controlling for market returns and heteroscedasticity

the end of the month as a preferred habitat a test of operational efficiency in the money market this paper argues that an aggregate preferred habitat for investors exists on or about the last day of the calendar month due to standardizations in the nation s payments system resulting in a concentrated flow of funds on this date thus equilibrium yield discounts are predicted for securities maturing on such dates empirical tests on monthly and daily treasury bill data support the principal hypothesis as well as several ancillary hy potheses the results have implications for treasury debt management for the short term cash and debt management practices of businesses and banks and for the empirical esti mation of daily weekly or monthly return premiums on risky securities

price dispersion and inflation evidence from israel the paper considers the question whether observed price differentials reflect perceived differences in quality service agreements or location or whether information imperfections can explain this phenomenon it sets out theoretical arguments linking inflation to reductions in the information stock held by agents and thus to greater price dispersion the hypothesis is tested using monthly price data for 13 uniquely defined goods sold in israel between 1971 and 1984 price dispersion is shown to be positively related to the rate of market price inflation since inflation is an unlikely proxy for changes in perceived characteristics the findings support price dispersion theories based on optimally imperfect decision making

investment in new activities and the welfare cost of uncertainty abstract recent literature has shown that trade distortions are associated with first order costs stemming from the induced drop in the formation of new activities we demonstrate that uncertainty may induce similar welfare costs and that these costs apply also to a closed economy this argument is illustrated in romer s model of a dependent economy where foreign direct investment is needed to enable the importation of capital goods and intermediate products used in domestic production we show that knightian uncertainty inhibits the formation of new activities leading to first order losses whereas risk aversion alone leads to second order losses

the lender of last resort a twenty first century approach the classical bagehot conception of a lender of last resort lolr that lends to illiquid banks has been criticized on two grounds on the one hand the distinction between insolvency and illiquidity is not clear cut on the other a fully collateralized repo market allows central banks to provide the adequate aggregate amount of liquidity and leave to the banks the responsibility of lending uncollateralized the object of this paper is to analyze these issues rigorously by providing a framework in which liquidity shocks cannot be distinguished from solvency ones and then asking whether there is a need for a lolr and how it should operate in the absence of systemic threats determining the optimal lolr policy requires a careful modeling of the structure of the interbank market and of the closure policy in our setup the results depend upon the existence of moral hazard if the main source of moral hazard is the banks lack of incentives to screen loans then the lolr may have to intervene to improve the efficiency of an unsecured interbank market in crisis periods if instead the main source of moral hazard is loan monitoring then the interbank market should be secured and the lolr should never intervene jel e58 628

international effects of a compression of euro area yield curves abstract in this paper we use a bayesian global vector autoregressive model to analyze the macroeconomic effects of a flattening of euro area yield curves our findings indicate positive effects on real activity and prices both within the euro area as well as in neighboring economies spillovers transmit through an exchange rate channel and a broad financial channel we complement our analysis by conducting a portfolio optimization exercise our results show that multi step ahead forecasts conditional on the euro area yield curve shock improve sharpe ratios relative to other investment strategies

undefeated equilibria of the shi trejos wright model under adverse selection abstract decentralized markets where assets are useful as media of exchange are also usually subject to private information to analyze the liquidity and prices of such assets i adapt the shi 1995 trejos and wright 1995 model with lucas trees under adverse selection while most studies focus on either a pooling or separating equilibrium i apply the undefeated equilibrium refinement by mailath et al 1993 to make the selection based on fundamentals under pooling the high quality asset holder accepts a pooled price and under separating signals quality through asset retention applying the refinement results in a regime switch from no information pooling to information revelation separating following a negative shock to the quality or quantity of lemons this change leads to a discontinuous fall in aggregate welfare

the effectiveness of unconventional monetary policy announcements in the euro area an event and econometric study abstract we use daily data on government bond yields and market based inflation expectations to measure the announcement effects of unconventional monetary policy announcements in the euro area focusing on their impact on ex ante real interest rates we find evidence of statistically significant effects of several announcements on real interest rates at maturities of two five and ten years that operate partly through nominal interest rates and partly by raising inflation expectations announcements that exceeded market expectations significantly reduced nominal and real interest rates while announcements that disappointed expectations had the opposite effect

the consequences of price instability on search markets toward understanding the effects of inflation real price variability depreciates the information about future prices contained in current ones repeat purchase customers have then less incentive to acquire price information the fact that consumers are less well informed allows firms to increase their markups and permits inefficient producers to increase their sales production gets reallocated toward higher cost firms given the well documented correlation between inflation and relative price variability these results help explain some of the costs of inflation copyright 1994 by american economic association

monetary policy surprises and interest rates evidence from the fed funds futures market abstract this paper estimates the impact of monetary policy actions on bill note and bond yields using data from the futures market for federal funds to separate changes in the target funds rate into anticipated and unanticipated components interest rates response to anticipated target rate changes is small while their response to unanticipated changes is large and highly significant these responses are generally consistent with the expectations hypothesis of the term structure surprise target rate changes have little effect on expectations of future actions however which helps to explain the lack of empirical support for the expectations hypothesis at the short end of the yield curve

price dispersion inflation and welfare we examine the implications of inflation for both price dispersion and welfare in a monetary search economy in our economy if the degree of buyers incomplete information about prices is fixed both price dispersion and real prices are increasing in inflation as the inflation rate approaches the friedman rule both price dispersion and welfare losses vanish if households choose the number of prices to observe then the optimal inflation rate may exceed the friedman rule as inflation induces search and up to a point raises welfare by eroding market power

search price setting and inflation a model of monopolistic competition in an inflationary environment is developed which embodies optimal sequential search price dynamics and entry on the part of consumers and firms respectively equilibrium price strategies are s s these bounds increase continuously with consumer search costs and so does price dispersion indeed the whole equilibrium varies smoothly from the competitive bertrand to the monopolistic diamond 1971 end of the spectrum the latter s paradoxical result is explained as a limiting case where frictions on firms side of the market price adjustment costs but not on buyers search costs tend to zero a positive relationship between smooth and perfectly anticipated inflation and price dispersion or uncertainty is established

inflation and efficiency in search markets this paper examines how inflation affects efficiency and output in monopolistically competitive search markets it formalizes the conventional wisdom linking higher inflation price dispersion and increased resources devoted to search it also brings to light the induced exit of arms which reduces rent dissipation but the most important effect of inflation is how it alters the distribution of real transactions prices whether this reduces or promotes efficiency and output is shown to depend critically on preferences and market structure and especially on whether search costs are large or small relative to consumer surplus

monetary instability the predictability of prices and the allocation of investment an empirical investigation using u k panel data it is often argued that monetary instability reduces the informational content of market signals and thereby hinders the efficient allocation of investment in this paper we use a signal extraction framework to give empirical content to this idea in particular we show why this framework predicts that as monetary uncertainty decreases the cross sectional distribution of investment widens we then explore this hypothesis using panel data information for uk companies over twenty years our data generally support the view that monetary instability may affect investment allocation through its effect on the predictability of prices this abstract was borrowed from another version of this item

search with learning from prices does increased inflationary uncertainty lead to higher markups aggregate cost uncertainty arising from real shocks or unanticipated inflation reduces the informativeness of prices by scrambling relative and aggregate variations but when agents can acquire additional information such increased noise may in fact lead them to become better informed and price competition will intensify we examine these issues in a model of search with learning where consumers search optimally from an unknown price distribution while firms price optimally given consumers search rules we show that the decisive factor in whether inflation variability increases or reduces the incentive to search and thereby market efficiency is the size of informational costs

the impact of chinese monetary policy on co movements between money and capital markets from 2010 to 2017 with interest rate liberalization and capital market development in china the impact of monetary policies on china s financial markets underwent continuous evolution using the