asymmetric price adjustment and economic fluctuations this paper considers a possible explanation for asymmetric adjustment of nominal prices the authors present a menu cost model in which positive trend inflation causes firms relative prices to decline automatically between price adjustments in this environment shocks that raise firms desired prices trigger larger price responses than shocks that lower desired prices the authors use this model of asymmetric adjustment to address three issues in macroeconomics the effects of aggregate demand the effects of sectoral shocks and the optimal rate of inflation copyright 1994 by royal economic society

interest rate deregulation monetary policy efficacy and rate rigidity abstract this paper examines the effects of interest rate regulation and subsequent deregulation on the efficacy of monetary policy and rigidity of retail bank deposit rates in hong kong using an error correction model we find that interest rate deregulation increases the efficacy of monetary policy by improving the correlation between retail bank deposit rates and market interest rates and increasing the degree of long term pass through for retail bank deposit rates our study also shows that the adjustments in retail bank deposit rates are asymmetric and rigid upwards during the regulated period but tend to be rigid downwards during the deregulated period the spreads between retail bank deposit rates and market rates have also tightened sharply after the removal of interest rate controls

pricing to market of italian exporting firms this article investigates the pricing to market ptm behaviour of italian exporting firms using quarterly survey data by sector and by region over the period 1999q1 to 2005q2 a partial equilibrium imperfect competition model provides the structure according to which the orthogonality of structural shocks is derived impulse response analysis shows non negligible reactions of export domestic price margins to unanticipated changes in cost competitiveness and in foreign and domestic demand levels even though these effects appear to be of a transitory nature for the period 1999 to 2001 a typical ptm behaviour emerges while during the most recent years favourable foreign demand conditions allowed firms to increase their export domestic price margins in face of a strong deterioration of their cost competitiveness macroeconomic implications of the observed ptm behaviour are also discussed

interest rate pass through monetary policy rules and macroeconomic stability abstract in this paper we analyze equilibrium determinacy in a sticky price model in which the pass through from policy rates to retail interest rates is sluggish and potentially incomplete in addition we empirically characterize and compare the interest rate pass through process in the euro area and the u s we find that if the pass through is incomplete in the long run the standard taylor principle is insufficient to guarantee equilibrium determinacy our empirical analysis indicates that this result might be particularly relevant for bank based financial systems as for instance that in the euro area

equilibrium demand elasticities across quality segments abstract empirical studies find substantial differences in demand elasticities and associated markups among products of different quality this paper analyzes the theoretical determinants of such variation we present a simple model that allows for horizontal and vertical differentiation and accounts for endogenous entry we find that most economic forces in our model such as consumers price sensitivity the scope for product differentiation and sunk costs of entry are likely to induce lower equilibrium demand elasticities for higher quality products in contrast other economic forces such as marginal cost of production and the distribution across consumers of the willingness to pay for quality may induce the opposite pattern these results provide an organizing framework through which empirical findings may be interpreted and may also help to predict variation in demand elasticities for markets in which empirical estimates of elasticities are unavailable or infeasible to obtain

does price elasticity vary with economic growth a cross category analysis abstract how does price sensitivity change with the macroeconomic environment the authors explore this question by measuring price elasticity using household level data across 19 grocery categories over 24 quarters for each category they estimate a separate random coefficients logit model with quarter specific price response parameters and control functions to address endogeneity this specification yields a novel set of 456 elasticities across categories and time that are generated using the same method and therefore can be directly compared on average price sensitivity is countercyclical it rises when the macroeconomy weakens however substantial variation exists and a handful of categories exhibit procyclical price sensitivity the authors show that the relationship between price sensitivity and macroeconomic growth correlates strongly with the average level of price sensitivity in a category they examine several explanations for this result and conclude that a category s share of wallet is th

the elasticity of substitution between time and market goods evidence from the great recession we document a change in household shopping behavior during the great recession households purchased more on sale larger sizes and generic products and increased coupon usage and shopping at discount stores we estimate a decline in returns to shopping during the recession therefore the increase in shopping behavior implies a significant decrease in households opportunity cost of time using the estimated cost of time and time use data we estimate a high elasticity of substitution between market expenditure and time spent on nonmarket work we find that households smooth a sizable fraction of consumption by varying their time allocation during recessions

asymmetric information and price competition in small business lending abstract this paper examines the relationship between bank lending rates and their cost of funds in new zealand our results show that on average mortgage rates respond more quickly to changes in the cost of funds than base business lending rates we also find an asymmetry in the initial short run response of banks to changes in funding costs in particular our results show banks adjust mortgage rates downwards faster than upwards the speed to which lending rates revert back to their equilibrium relationship with funding costs varies across the lending markets we find the adjustment speed is faster when mortgage rates are below equilibrium whereas it is slower when business lending rates are above long run levels in relation to funding costs our analysis suggests that banks prefer the plain vanilla type of lending such as mortgages in comparison to small business lending consistent with asymmetric information associated with business loans

rethinking the liquidity puzzle application of a new measure of the economic money stock historically attempts to solve the liquidity puzzle have focused on narrowly defined monetary aggregates such as non borrowed reserves the monetary base or m1 many of these efforts have failed to find a short term negative correlation between interest rates and monetary policy innovations more recent research uses sophisticated macroeconomic and econometric modeling however little research has investigated the role measurement error plays in the liquidity puzzle since in nearly every case work investigating the liquidity puzzle has used one of the official monetary aggregates which have been shown to exhibit significant measurement error this paper examines the role that measurement error plays in the liquidity puzzle by i providing a theoretical framework explaining how the official simple sum methodology can lead to a liquidity puzzle and ii testing for the liquidity effect by estimating an unrestricted var

how bank capital buffers vary across countries the influence of cost of deposits market power and bank regulation abstract this paper analyzes the bank and country determinants of capital buffers using a panel data of 1337 banks in 70 countries between 1992 and 2002 after controlling for adjustment costs and the endogeneity of explanatory variables the results show that capital buffers are positively related to the cost of deposits and bank market power although the relations vary across countries depending on regulation supervision and institutions their impact is the result of two generally opposing effects restrictions on bank activities and official supervision reduce the incentives to hold capital buffers by weakening market discipline but at the same time they promote higher capital buffers by increasing market power institutional quality has the two opposite effects better accounting disclosure and less generous deposit insurance however have a clear positive effect on capital buffers by both strengthening market discipline and making charter value better able to reduce risk taking incentives

loan pricing under basel ii in an imperfectly competitive banking market abstract the new basel ii accord 2006 established new and revised capital requirements for banks in this paper we analyze and estimate the possible effects of the new rules on the pricing of bank loans we relate to the two approaches for capital requirements internal and standardized and distinguish between retail and corporate customers our loan equation is based on a model of a banking firm facing uncertainty operating in an imperfectly competitive loan market we use israeli economic data and data of a leading israeli bank the main results indicate that high quality corporate and retail customers will enjoy a reduction in loan interest rates in big banks which most probably will adopt the irb approach on the other hand high risk customers will benefit by shifting to small banks that adopt the standardized approach

household production and the excess sensitivity of consumption to current income empirical research on the permanent income hypothesis pih has found that consumption growth is excessively sensitive to predictable changes in income this finding is interpreted as strong evidence against the pih we propose an explanation for apparent excess sensitivity that is based on a quantitative equilibrium model of household production in which permanent income consumers respond to shifts in sectoral wages and prices by substituting work effort and consumption across home and market sectors although the pih is true this mechanism generates apparent excess sensitivity because market consumption responds to predictable income growth

pandemics of the poor and banking stability we first develop a theoretical model that shows that the likelihood of a collapse of the banking industry of a developing country increases as the joint prevalence of large pandemics such as aids and malaria increases we also show that the optimal bank reserves increase as the prevalence increases in the empirical part of the paper we consider a large dataset of developing countries and we exhibit a causality effect from combined prevalence to deposit turnover as well as causality effect from an increase of combined prevalence to an increase in bank reserves those empirical facts therefore support our theoretical findings

life cycle prices and production we use scanner data and time diaries to document how households substitute time for money through shopping and home production we document substantial heterogeneity in prices paid for identical goods for the same area and time with older households shopping the most and paying the lowest prices doubling shopping frequency lowers a good s price by 7 to 10 percent we estimate the shopper s price of time and use this series to estimate an elasticity of substitution between time and goods in home production of roughly 1 8 the observed life cycle time allocation implies a consumption series that differs markedly from expenditures

do interest rates drive inflation dynamics an analysis of the cost channel of monetary transmission abstract this paper proposes a novel approach to empirically assessing the impact of the cost channel of monetary transmission on the dynamics of inflation within a new keynesian phillips curve framework according to the cost channel higher interest rates translate into higher marginal costs of production and eventually into higher inflation we exploit the present value implications of the model to derive a series of fundamental inflation that is contrasted with actual inflation we show that the cost channel adds significantly to the explanation of inflation dynamics in forward looking sticky price models for the us the uk and the euro area moreover the cost channel can explain inflation episodes that cannot be accounted for by the standard new keynesian model

moving back home insurance against labor market risk this paper demonstrates that the option to move in and out of the parental home is a valuable insurance channel against labor market risk which facilitates the pursuit of jobs with the potential for high earnings growth using monthly panel data i document an empirical relationship among coresidence individual labor market events and subsequent earnings growth i estimate the parameters of a dynamic game between youths and parents to show that the option to live at home can account for features of aggregate data for low skilled young workers small consumption responses to shocks high labor elasticities and low savings rates

the differentiation triangle the paper formalizes the observation that submarkets for high quality and low quality variants are markedly different from each other we study a simple model where variants of low quality cannot be horizontally differentiated whereas customers disagree about the value of variants in the high quality range we determine the outcome under price competition in the differentiation triangle with sequential entry when each firm can develop the vertical product line or decide to follow a niche strategy i e to develop only one variant

product line rivalry and market segmentation with an application to automobile optional engine pricing this paper addresses the questions whether and when the pricing practices on base products may differ from those of premium products sold with options or add ons various alternative models are considered a monopoly model a model of brand rivalry with full consumer information and a model of rivalry in which consumers are only well informed about base product prices only the brand rivalry model with limited consumer information predicts that premium products have larger percentage markups than base products provided that brand rivalry is sufficiently intense empirical evidence on base and premium product pricing in the automobile market is consistent with the limited information model and inconsistent with the other two models

heterogeneity and aggregation implications for labor market fluctuations we demonstrate that aggregate employment and consumption can increase without a corresponding movement in productivity in a model with heterogeneous agents where the only aggregate disturbance is a productivity shock the interaction between incomplete capital markets and indivisible labor results in a low employment productivity correlation and creates a time varying wedge between the marginal rate of substitution for commodity consumption and hours and productivity our results caution against viewing the measured wedge as an inefficiency due to a failure of labor market clearing or as a fundamental driving force behind business cycles jel d31 e32 j22 j24 j31

income and wealth effects on private label demand evidence from the great recession we measure the causal effects of income and wealth on the demand for private label products prior research suggests that these effects are large and in particular that private label demand rises during recessions our empirical analysis is based on a comprehensive household level transactions database matched with price information from store level scanner data and wealth data based on local house value indices the great recession provides a key source of the variation in our data showing a large and geographically diverse impact on household incomes over time we estimate income and wealth effects using within variation of income at the household level and wealth at the zip code level our estimates can be interpreted as income and wealth effects consistent with a consumer demand model based on utility maximization we establish a precisely measured negative effect of income on private label shares the effect of wealth is negative but not precisely measured however the estimated effect sizes

secured lending and default risk equilibrium analysis policy implications and empirical results the authors examine collateral in a competitive equilibrium in which borrowers can choose hidden actions and may additionally possess hidden knowledge apart from explaining the widespread use of collateral despite deadweight costs they show that an increase in the riskless interest rate causes equilibrium loan rates and collateral requirements to increase a decline in the deadweight costs of collateral reduces the equilibrium collateral use under moral hazard and an increase in the borrower s project size reduces equilibrium collateral use under moral hazard some of these predictions are tested and found to be supported by the data copyright 1991 by royal economic society

inflation dynamics and the cost channel of monetary transmission evidence from vector autoregressions indicates that the impact of interest rate shocks on macroeconomic aggregates can substantially be affected by the so called cost channel of monetary transmission in this paper we apply a structural approach to examine the relevance of the cost channel for inflation dynamics in g7 countries we augment the so called hybrid new keynesian philips curve by letting firms costs for external funds rise with the short run nominal interest rate our estimates reveal that the magnitude of this cost channel strongly varies between countries including member countries of the emu in accordance with differences in their financial systems simulations of a new keynesian model further show that the presence of the cost channel substantially affects the transmission of monetary policy shocks in particular the inflation response

measuring market power in the ready to eat cereal industry the ready to eat cereal industry is characterized by high concentration high price cost margins large advertising to sales ratios and numerous introductions of new products previous researchers have concluded that the ready to eat cereal industry is a classic example of an industry with nearly collusive pricing behavior and intense nonprice competition this paper empirically examines this conclusion in particular i estimate price cost margins but more importantly i am able empirically to separate these margins into three sources i that which is due to product differentiation ii that which is due to multi product firm pricing and iii that due to potential price collusion the results suggest that given the demand for different brands of cereal the first two effects explain most of the observed price cost margins i conclude that prices in the industry are consistent with noncollusive pricing behavior despite the high price cost margins leading firms are able to maintain a portfolio of differentiated products and influence the perceived product quality it is these two factors that lead to high price cost margins

asymmetric adjustment of commercial bank interest rates evidence from malaysia and singapore abstract this paper examines the rigidity of commercial bank interest rates using evidence from singapore and malaysia an asymmetric error correction technique is used to test whether mean adjustment lags are different when retail rates are above or below their equilibrium levels it is concluded in both countries that the mean adjustment lag is shorter when the deposit rate is above its equilibrium than when it is below its equilibrium using the framework of hannan and berger 1991 this finding implies that the hypothesis of collusion cannot be rejected

trading down and the business cycle abstract we document two facts first during the great recession consumers traded down in the quality of the goods and services they consumed second the production of low quality goods is less labor intensive than that of high quality goods when households traded down labor demand fell increasing the recession s severity we find that the trading down phenomenon accounts for a substantial fraction of the decline in u s employment in the recent recession we show that embedding quality choice in a business cycle model improves the model s amplification and comovement properties

time use during the great recession using data from the american time use survey between 2003 and 2010 we document that home production absorbs roughly 30 percent of foregone market work hours at business cycle frequencies leisure absorbs roughly 50 percent of foregone market work hours with sleeping and television watching accounting for most of this increase we document significant increases in time spent on shopping child care education and health job search absorbs between 2 and 6 percent of foregone market work hours we discuss the implications of our results for business cycle models with home production and non separable preferences jel codes d13 e32 j22

excess liquidity bank pricing rules and monetary policy abstract this paper studies the implications of excess bank liquidity for the effectiveness of monetary policy in a simple model with credit market imperfections the demand for excess reserves is determined by precautionary factors and the opportunity cost of holding cash it is argued that excess liquidity may impart greater stickiness to the deposit rate in response to a monetary contraction and induce an easing of collateral requirements on borrowers which in turn may translate into a lower risk premium and lower lending rates as a result asymmetric bank pricing behavior under excess liquidity may hamper the ability of a contractionary monetary policy to lower inflation

competition and collusion in the american automobile industry the 1955 price war movements in total quantity and in quality adjusted price suggest a supply side shock in the american automobile market in 1955 this paper tests the hypothesis that the shock was a transitory change in industry conduct a price war the key ingredients of the test are alternative equilibrium models of oligopoly under product differentiation in nonnested cox tests of hypotheses a collusive solution is sustained in 1954 and in 1956 while a competitive solution holds in 1955 the result does not appear to be an artifact since it is robust in tests against alternative specifications copyright 1987 by blackwell publishing ltd

estimation of a model of entry in the airline industry this paper considers the effect of an airline s scale of operation at an airport on the profitability of routes flown out of that airport the empirical methodology uses the entry decisions of airlines as indicators of underlying profitability the results extend the empirical literature on airport presence by providing a new set of estimates of the determinants of city pair profitability these estimates imply that city pair profits increase in airport presence and decrease rapidly in the number of entering firms the literature on empirical models of oligopoly entry is also extended via a focus on the role of differences between firms

does collateral fuel moral hazard in banking this paper presents two models in which the fluctuating value of loan collateral real estate generates the problem of moral hazard between a bank and a deposit insurance agent the bank finances risky projects against collateral and relies on the rising collateral value if the collateral value later appreciates the bank enjoys handsome profits otherwise the bank fails the findings are rather consistent with the characteristics of the topical subprime mortgage crisis

is there a cost channel of monetary policy transmission an investigation into the pricing behavior of 2 000 firms the paper exploits a unique panel covering some 2 000 italian manufacturing firms and 14 years of data on individual prices and individual interest rates paid on several types of debt to address the question of the existence of a channel of transmission of monetary policy operating through the effect of interest expenses on the marginal cost of production it has been argued that this mechanism may explain the dimension of the real effects of monetary policy give a rationale for the positive short run response of prices to interest rate increases the price puzzle and call for a more gradual monetary policy response to shocks we find robust evidence in favor of the presence of a cost channel of monetary policy transmission proportional to the amount of working capital held by each firm the channel is large enough to have non trivial monetary policy implications

the price puzzle reconsidered abstract a large literature has employed structural vector autoregressive svar models to investigate the empirical effects of u s monetary policy many of these models regularly produce a price puzzle a rise in the aggregate price level in response to a contractionary innovation to monetary policy unless commodity prices are included conventional wisdom maintains that commodity prices resolve the price puzzle because they contain information that helps the federal reserve forecast inflation i examine a number of plausible alternative indicator variables and find little correlation between an ability to forecast inflation and an ability to resolve the price puzzle additionally a sub sample investigation reveals that evidence of a price puzzle is associated primarily with the 1959 1979 sample period and that most indicators including commodity prices cannot resolve the puzzle over this period

optimal monetary policy with the cost channel in the standard new keynesian framework an optimizing policy maker does not face a trade off between stabilizing the inflation rate and stabilizing the gap between actual output and output under flexible prices an ad hoc exogenous cost push shock is typically added to the inflation equation to generate a meaningful policy problem in this paper we show that a cost push shock arises endogenously when a cost channel for monetary policy is introduced into the new keynesian model a cost channel is present when firms marginal cost depends directly on the nominal rate of interest besides providing empirical evidence for a cost channel we explore its implications for optimal monetary policy we show that its presence alters the optimal policy problem in important ways for example both the output gap and inflation are allowed to fluctuate in response to productivity and demand shocks under optimal monetary policy

third degree price discrimination in a short stay accommodation industry this article analyses the pricing in the short stay accommodation industry in tasmania it utilizes a novel 2008 survey of tasmanian short stay accommodation firms in which business managers were asked about their perception of the elasticity of their firm s demand in each of the market segments that their firm supplied this direct observation of elasticity allows us to demonstrate that firms price across market segments act in a manner consistent with the lerner index and the theory of third degree price discrimination further we show in line with expectations based on the literature that increased quality of the accommodation lowers the elasticity of demand while the elasticity of demand is higher in winter surprisingly internet sales channels do not exhibit a different elasticity of demand to other sales channels

flexible inflation targeting and financial stability is it enough to stabilize inflation and output abstract we investigate empirically whether a central bank can promote financial stability by stabilizing inflation and output and whether additional stabilization of asset prices and credit growth would enhance financial stability in particular we employ an econometric model of the norwegian economy to investigate the performance of simple interest rate rules that allow a response to asset prices and credit growth in addition to inflation and output we find that output stabilization tends to improve financial stability additional stabilization of house prices equity prices and or credit growth enhances stability in both inflation and output but has mixed effects on financial stability in general financial stability as measured by e g asset price volatility improves while financial stability measured by indicators that depend directly on interest rates deteriorates mainly because of higher interest rate volatility owing to a more active monetary policy

do higher prices for new goods reflect quality growth or inflation much of consumer price index cpi inflation for consumer durables reflects shifts to newer product models that display higher prices not price increases for a given set of goods i examine how these higher prices for new models should be divided between quality growth and price inflation based on a whether consumer purchases shift toward or away from the new models and b whether new model price increases generate higher relative prices that persist through the model cycle i conclude that two thirds of the price increases with new models should be treated as quality growth this implies that cpi inflation for durables has been overstated by almost 2 percentage points per year with quality growth understated by the same magnitude

consumer shopping behavior how much do consumers save this paper documents the potential and actual savings that consumers realize from four particular types of purchasing behavior purchasing on sale buying in bulk at a lower per unit price buying generic brands and choosing outlets how much can and do households save through each of these behaviors how do these patterns vary with consumer demographics we use data collected by a marketing firm on all food purchases brought into the home for a large nationally representative sample of u k households in 2006 we are interested in how consumer choice affects the measurement of price changes in particular a standard price index based on a fixed basket of goods will overstate the rise in the true cost of living because it does not properly consider sales and bulk purchasing according to our measures the extent of this bias might be of the same or even greater magnitude than the better known substitution and outlet biases

excess reserves monetary policy and financial volatility abstract this paper examines the real and financial effects of reserves in a dynamic stochastic general equilibrium dsge model with monopoly banking and credit market imperfections the framework explicitly accounts for the fact that commercial banks hold excess reserves and they incur costs in holding these assets the model also accounts for imperfect substitutability between bank funding sources and it shows that this feature is an important channel through which reserve requirement shocks can affect real variables numerical experiments show that an increase in reserve requirements creates a countercyclical effect for real economic activity the results also indicate that the combination of an augmented taylor rule which responds to excess reserves and a countercyclical reserve requirement rule is optimal to mitigate macroeconomic and financial volatility associated with liquidity shocks

monetary transmission via the administered interest rates channel abstract this paper examines the dynamics of administered interest rate changes in response to changes in the benchmark money market rate in singapore our results show that the administered rates adjustment speed differs across both financial institutions and financial products the financial institutions administered lending and deposit rates moreover are more rigid when they are below their equilibrium level than when they are above our finding hence implies that the speed of monetary transmission is not uniform across all sectors of the economy and that a tightening monetary policy takes a longer time to impact the economy than an expansionary monetary policy

the role of collateral in a model of debt renegotiation this paper studies the effect of debt renegotiation on the design of optimal loan arrangements in a model of borrowing and lending with asymmetric information renegotiation may occur because bankruptcy involves costly asset liquidation which is ex post inefficient the author shows that the extent of the entrepreneur s liabilities in the optimal loan contract depends upon the creditor s commitment to impose bankruptcy should default ever occur a limited liability arrangement is optimal whenever the creditor is precommited not to forgive any portion of the outstanding debt otherwise debt may efficiently be secured by outside collateral copyright 1994 by ohio state university press

a computational approach to pricing a bank credit line abstract using trended brownian motion to characterize borrower cash needs over time we are able to derive a probability density function for the time to depletion of a bank credit line as well as the likelihoods for the time to exhausting the sources of liquidity that fund the loan armed with these analytic results we solve for the credit line mark up rate and the configuration of stored liquidity that maximizes the bank s intertemporal expected profits from the loan the optimality conditions produce a system of integral differential equations whose solutions we then simulate over a host of scenarios

bank concentration and retail interest rates abstract the recent wave of mergers in the euro area raises the question whether the increase in concentration has offset the increase in competition in european banking through deregulation we test this question by estimating a simple cournot model of bank pricing we construct country and product specific measures of bank concentration and find that for loans and demand deposits increasing concentration may have resulted in less competitive pricing by banks whereas for savings and time deposits the model is rejected suggesting increases in contestability and or efficiency in these markets finally the paper discusses some implications for tests of the effect of concentration on monetary policy transmission

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

an empirical analysis of excess interbank liquidity a case study of pakistan we investigate the drivers of excess interbank liquidity in pakistan using the autoregressive distributed lag approach on weekly data for december 2005 to july 2011 we find that the financing of the government budget deficit by the central bank and nonbanks leads to persistence in excess liquidity moreover we identify a structural shift in the interbank market in june 2008 before june 2008 low credit demand was driving the excess liquidity holdings by banks after june 2008 banks precautionary investments in risk free securities drive excess liquidity holdings monetary policy is less effective if banks hold excess liquidity for precautionary reasons

product differentiation and oligopoly in international markets the case of the u s automobile industry this paper develops and estimates a model of the u s automobile industry on the demand side a discrete choice model is adopted that is estimated using micro data from the consumer expenditure survey the estimation results are used in conjunction with population weights to derive aggregate demand on the supply side the automobile industry is modelled as an oligopoly with product differentiation equilibrium is characterized by the first order conditions of the profit maximizing firms the estimation results are used in counterfactual simulations to investigate two trade policy issues the effects of the ver and exchange rate pass through

stagflationary effects of monetary stabilization policies a quantitative analysis of south korea this paper presents a macro model of the korean economy that focuses on short run macro economic adjustment and more in particular on the transmission channels of monetary policy between the financial and the real sector of the economy in addition to the usual link between monetary policy and aggregate demand via investment the link between monetary policy and the supply side of the economy via the financing of working capital with borrowed funds is incorporated this link can potentially reverse the short run impact of tight money on inflation and aggregate the impact on output both export prices and domestic prices show a significant sensitivity to cost of financing working capital this credit supply side link gives a stagflationary bias to restrictive credit policies the empirical relevance of this phenomenon is strongly supported by the simulation results derived with the model structurally section 2 of the paper focuses on the real sector part of the model section 3 discusses the financial sector in section 4 different monetary stabilization packages are simulated using the model presented in sections 2 and 3 and alternative policy measures are discussed the simulation runs show strong short run stagflationary effects of tight money policies

quantifying quality growth we introduce an instrumental variables approach to estimate the importance of unmeasured quality growth for a set of 66 durable consumer goods our instrument is based on predicting which of these 66 goods will display rapid quality growth using pooled cross relatively sections of households in the 1980 through 1996 u s consumer expenditure surveys we estimate quality engel curves for 66 durable consumer goods based on the extent richer households pay more for a good conditional on purchasing we use the slopes of these curves to predict the rate of quality upgrading just as if households are ascending these quality engel curves over time we find that the average price paid rises faster for goods with steeper quality slopes bls prices likewise increase more quickly for goods with steeper quality slopes suggesting the bls does not fully net out the impact of quality upgrading on prices paid we estimate that quality growth averages about 3 7 per year for our goods with about 60 of this or 2 2 per year showing up as higher inflation rather than higher real growth