inefficient credit booms this paper studies the welfare properties of competitive equilibria in an economy with financial frictions hit by aggregate shocks in particular it shows that competitive financial contracts can result in excessive borrowing ex ante and excessive volatility ex post even though from a first best perspective the equilibrium always displays under borrowing from a second best point of view excessive borrowing can arise the inefficiency is due to the combination of limited commitment in financial contracts and the fact that asset prices are determined in a spot market this generates a pecuniary externality that is not internalized in private contracts the model provides a framework to evaluate preventive policies which can be used during a credit boom to reduce the expected costs of a financial crisis copyright 2008 wiley blackwell

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

safe assets as commodity money this paper presents a model in which safe assets are systemic because they are the medium of exchange in risky assets it connects the literature from banking and finance on safe assets to the monetary literature on alternative monetary systems involving commodity money interest bearing money and private money creation because safe assets have intrinsic value changes in their supply lead to changes in market efficiency additionally because safe assets are costly to produce there is overproduction of safe assets relative to the social optimum when the model is calibrated to plausible liquidity premiums the resulting inefficiencies are not large

a liquidity based model of security design we consider the problem of the design and sale of a security backed by specified assets given access to higher return investments the issuer has an incentive to raise capital by securitizing part of these assets at the time the security is issued the issuer s or underwriter s private information regarding the payoff of the security may cause illiquidity in the form of a downward sloping demand curve for the security the severity of this illiquidity depends upon the sensitivity of the value of the issued security to the issuer s private information thus the security design problem involves a tradeoff between the retention cost of holding cash flows not included in the security design and the liquidity cost of including the cash flows and making the security design more sensitive to the issuer s private information we characterize the optimal security design in several cases we also demonstrate circumstances under which standard debt is optimal and show that the riskiness of the debt is increasing in the issuer s retention costs for assets

macroeconomic shocks and banking regulation the recent crisis has brought to the fore the cyclical properties of banking regulation countercyclical buffers and enhanced capital requirements meant to stabilize banks balance sheets across the cycle are not costless and a delicate balance needs to be reached between providing incentives to generate value and discouraging excessive risk taking the paper develops a model in which in contrast with modigliani miller outside equity and capital requirements matter it analyses banking regulation in the presence of macroeconomic shocks and studies the desirability of self insurance mechanisms such as countercyclical capital buffers or dynamic provisioning as well as macro hedges such as cocos and capital insurance

a simple general equilibrium model of large excess reserves abstract in a general equilibrium macroeconomic model with a banking system that can hold large excess reserves and is subject to possibly binding capital constraints i study how the quantity of government provided monetary assets is related to the price level in steady state when the central bank does not pay interest on reserves the price level moves one for one with the monetary base if instead the central bank can pay interest on reserves at market rates the price level can decouple from the quantity of monetary assets in the economy a larger monetary base need not imply a higher price level however for large enough levels of reserves the capital constraint binds and the tight link between money and prices reemerges

self fulfilling fire sales fragility of collateralised short term debt markets this paper shows that collateralised short term debt although privately optimal for reducing borrowers moral hazard can cause fragility multiple equilibria when the collateral market is illiquid a new form of coordination failure between borrowers ex ante margin and risk taking decisions engenders a systemic run in the collateralised debt market large changes in credit rationing margins repo spreads etc the model also captures the large small crosssectional differences between safe and risky collateral in bad good times finally i show that asset price guarantees could improve welfare and promote stability but repealing repo contracts automatic stay exemption might do the opposite

from cash in the market pricing to financial fragility we review some recent research that explores the relationship between asset price volatility and financial fragility when markets and contracts are incomplete jel e5 g2

house prices bank instability and economic growth evidence from the threshold model abstract this paper examines the effects of house prices on bank instability when gauged at various levels of income growth bank stability may respond differently to house price changes or deviations from fundamental values in an economic boom environment than in a bust circumstance a threshold estimation technique developed by hansen 1999 is applied to a panel of 286 u s metropolitan statistical areas msas over the period 1990q1 2010q4 we consider two house price indicators the house price changes and the house price deviations from long run equilibrium the results suggest the existence of income growth threshold effects in the relationship between house prices and bank instability specifically there are two income growth thresholds when using the house price changes and one income growth threshold when the house price deviations are applied robustness results using the non msas sample from 1995q1 to 2010q4 provide further evidence of income growth threshold effects

debt and seniority an analysis of the role of hard claims in constraining management we argue that long term debt has a role in controlling management s ability to finance future investments a company with high widely held debt will find it hard to raise capital since new security holders will have low priority relative to existing creditors conversely for a company with low debt we show there is an optimal debt equity ratio and mix of senior and junior debt if management undertakes unprofitable as well as profitable investments we derive conditions under which equity and a single class of senior long term debt work as well as more complex contracts for controlling investment behavior

how excessive is banks maturity transformation we quantify the gains from regulating banks maturity transformation in an infinite horizon model of banks which finance long term assets with non tradable debt banks choose the amount and maturity of their debt trading off investors preference for short maturities with the risk of systemic crises as in stein 2012 pecuniary externalities make unregulated debt maturities inefficiently short the assessment is based on the calibration of the model to eurozone banking data for 2006 lengthening the average maturity of wholesale debt from its 2 8 months to 3 3 months would produce welfare gains with a present value of euro 105 billion

leverage cycles and the anxious economy ing opportunities for emerging economies their access to international markets has turned out to be very volatile with frequent periods of market closures even worse as we will show emerging economies with sound fundamentals are the ones that issue less debt during these closures the goal of this paper is to present a theory of asset pricing that will shed light on the problems of emerging assets like emerging markets that are not yet mature enough to be attractive to the general public their marginal buyers are liquidity constrained investors with small wealth relative to the whole economy who are also marginal buyers of other risky assets we will use our theory to argue that the periodic problems faced by emerging asset classes are sometimes symptoms of what we call a global anxious economy rather than of their own fundamental weaknesses

sex discrimination in labor markets the role of statistical evidence reply correlations between statistically measured wage discrimination and confidential survey reports of discrimination are used to estimate the relative importance of statistical evidence in determining womens self assessed discrimination levels statistical evidence is found to be considerably less important than other nonstatistical evidence assuming courts weigh statistical versus other evidence as individuals do the effects of making statistical evidence admissible are calculated young well educated women are predicted to be the main beneficiaries of this policy copyright 1987 by american economic association

occupational segregation and wage differentials between natives and immigrants evidence from hong kong abstract this paper attempts to provide the first set of evidence on the intra and inter occupational earnings differentials between immigrants and the native by studying hong kong 1996 census data we found that the intra occupational earnings differential is slightly more important than the inter occupational earnings differential comparing with the literature on gender wage differentials immigrants seem to face more barriers to entry into good occupations than females in a relative sense moreover most of the intra occupational differential is unexplained occupational segregation gets smaller as the duration of residence rises and does not exist for immigrants who came to hong kong at young ages

shifts in us federal reserve goals and tactics for monetary policy a role for penitence during the fi rst period starting in the mid 1920s the federal reserve offi cial during the fi rst period starting in the mid 1920s the federal reserve offi cial policy was to support high quality bank lending but not speculative lending this policy was to support high quality bank lending but not speculative lending this goal was set aside once in 1927 in an episode that many observers then blamed for goal was set aside once in 1927 in an episode that many observers then blamed for the economic collapse that followed the fi nancial crash of 1929 the fed was then the economic collapse that followed the fi nancial crash of 1929 the fed was then reluctant to increase the funds available to banks through the early 1930s even as reluctant to increase the funds available to banks through the early 1930s even as the great depression ravaged the economy the fed s concern with the volume and the great depression ravaged the economy the fed s concern with the volume and quality of lending in the setting of monetary policy did eventually wither however quality of lending in the setting of monetary policy did eventually wither however this only seems to have happened after the publication of friedman and schwartz this only seems to have happened after the publication of friedman and schwartz 1963 a revisionist history of the great depression that blamed its depth on the 1963 a revisionist history of the great depression that blamed its depth on the fed s inappropriate focus on productive lending fed s inappropriate focus on productive lending in the second period after the experience of post world war ii infl ation the in the second period after the experience of post world war ii infl ation the federal reserve in the 1950s was highly concerned with infl ation and was willing to federal reserve in the 1950s was highly concerned with infl ation and was willing to raise interest rates and bring on recessions to nip even modest infl ation rates in the raise interest rates and bring on recessions to nip even modest infl ation rates in the bud this brought withering criticism for the federal reserve on the grounds that bud this brought withering criticism for the federal reserve on the grounds that the recessions of 1957 and 1960 had been unnecessary by the mid 1960s some fed the recessions of 1957 and 1960 had been unnecessary by the mid 1960s some fed offi cials seem to have developed an aversion to creating recessions as a method of offi cials seem to have developed an aversion to creating recessions as a method of

learning and complementarities in speculative attacks we study a model where the aggregate trading of currency speculators reveals new information to the central bank and affects its policy decision we show that the learning process gives rise to coordination motives among speculators leading to large currency attacks and introducing non fundamental volatility into exchange rates and policy decisions we show that the central bank can improve the ex ante effectiveness of its policy by committing to put a lower weight ex post on the information from the market and that transparency may either increase or decrease the effectiveness of learning from the market depending on how it is implemented

managing credit booms and busts a pigouvian taxation approach we study a dynamic model in which the interaction between debt ac cumulation and asset prices magni es credit booms and busts we nd that borrowers do not internalize these feedback eects and therefore suf fer from excessively large booms and busts in both credit ows and asset prices we show that a pigouvian tax on borrowing may induce borrowers to internalize these externalities and increase welfare we calibrate the model by reference to i the us small and medium sized enterprise sector and ii the household sector and nd the optimal tax to be countercycli cal in both cases dropping to zero in busts and rising to approximately half a percentage point of the amount of debt outstanding during booms

money creation and the shadow banking system many explanations for the rapid growth of the shadow banking system in the mid2000s focus on money demand this paper asks whether the short term liabilities of the shadow banking system behave like money we rst present a simple model where households demand money services which are supplied by three types of claims deposits treasury bills and asset backed commercial paper abcp the model provides predictions for the price and quantity dynamics of these claims as well as the behavior of the banking system in terms of issuance and the monetary authority in terms of open market operations consistent with the model the empirical evidence suggests that the shadow banking system does respond to money demand

private money creation liquidity crises and government interventions abstract the joint supply of public and private liquidity is examined when financial intermediaries issue both riskless and risky debt and the economy is vulnerable to liquidity crises government interventions in the form of asset purchases and deposit insurance are equivalent in the sense that they sustain the same equilibrium allocations increase welfare and if fiscal capacity is sufficiently large eliminate liquidity crises in contrast restricting intermediaries to investing in low risk projects always eliminates liquidity crises but reduces welfare under some conditions deposit insurance gives rise to an equilibrium in which intermediaries that issue insured debt i e traditional banks coexist with others that issue uninsured debt i e shadow banks despite the two being ex ante identical

the creditor channel of liquidity crises this paper presents a model to study the transmission of liquidity shocks across financial institutions through the creditor channel in the model a borrower institution obtains funds from a large institutional lender and small investors when the large lender s asset market is hit by a liquidity shock it might decide to withdraw funding extended to the borrower the potential withdrawal by the large lender causes small investors to panic and to close positions even if the large lender does not facing funding problems the borrower has to cut its activities contributing to further shocks to the supply of market liquidity the original shock is exacerbated which reinforces withdrawals by all creditors the model helps explain how the spreading of liquidity shocks from the broker dealer sector to the hedge fund sector and the feedback contribute to a systemic crisis

how the world achieved consensus on monetary policy the worldwide progress in monetary policy is a great achievement and especially considering the situation 30 years ago a remarkable success story i describe how the world achieved a working consensus on the core principles of monetary policy by the late 1990s i survey the muddled state of affairs in the 1970s and then ask what happened in federal reserve policy to produce an understanding of the practical principles of monetary policy how did formal institutional support for targeting low inflation abroad follow from an international acceptance of these ideas and how did a consensus theoretical model develop in academia i explain how the modern theoretical consensus known alternatively as the new neoclassical synthesis or the new keynesian model of monetary policy reinforces key advances the priority for price stability the targeting of core rather than headline inflation the importance of credibility for low inflation and preemptive interest rate policy supported by transparent objectives and procedures of course a working consensus does not constitute complete agreement accordingly the conclusion identifies important monetary policy issues that remain to be explored

financial intermediaries and liquidity creation trading losses associated with information asymmetries can be mitigated by designing securities which split the cash flows of underlying assets these securities which can arise endogenously have values that do not depend on the information known only to informed agents bank debt deposits is an example of this type of liquid security which protect relatively uninformed agents and we provide a rationale for deposit insurance in this content high grade corporate debt and government bonds are other examples implying that a money market mutual fund based payments system may be an alternative to one based on insured bank deposits

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

liquidity provision banking and the allocation of interest rate risk abstract the paper studies the efficient allocation of technology induced interest rate risk and the implications of such risk for efficient liquidity provision complete immunization against interest rate risk is shown to be undesirable as it precludes the exploitation of favourable reinvestment opportunities under the assumptions of diamond dybvig 1983 interest induced valuation risks of long term assets should be born by early withdrawers reinvestment opportunity risks of short term assets by late withdrawers efficient liquidity provision thus entails no shifting of interest rate risk in the absence of additional moral hazard second best allocations can be implemented through unregulated competition among banks

the deposits channel of monetary policy we propose and test a new channel for the transmission of monetary policy we show that when the fed funds rate increases banks widen the interest spreads they charge on deposits and deposits ow out of the banking system we present a model in which imperfect competition among banks gives rise to these relationships an increase in the nominal interest rate increases banks market power inducing them to increase deposit spreads and hence restrict deposit supply households respond to the increase in deposit prices by substituting from deposits into less liquid but higheryielding assets consequently changes in the nominal interest rate aect banks cost of capital and lending using branch level data on the universe of u s banks we show that following an increase in the fed funds rate deposit spreads increase by more and supply falls more in areas with less deposit competition we control for changes in banks lending opportunities by comparing branches of the same bank we control for changes in macroeconomic conditions by showing that deposit spreads widen immediately after a rate change and even if this change is fully anticipated our results imply that monetary policy has a signicant impact on how the nancial system is funded on the quantity of safe and liquid assets it produces and on its provision of loans to the real economy

market reactions to ecb policy innovations a cross country analysis abstract regulators have been paying increasing attention to governing and steering market fluctuations with their role in shaping the economic cycle being ever more crucial the combined effect of the financial and sovereign debt crises as well as the approach to the zero lower bound has made actions even more pressing forcing the european central bank to resort to unconventional instruments to revive the economies and counter deflationary pressures by using a combined event study and panel regression methodology we investigate whether european monetary union equity markets react heterogeneously to standard and non standard european central bank policy innovations our results show that conventional policies unevenly affect financial indices in the eurozone and hence are bound to generate asymmetries that reflect on real economies while unconventional measures albeit with different intensities exercise a homogeneous pressure on all markets our evidence highlights the beneficial impact of unconventional measures and suggests that they can play a useful role even in non crisis times

jointly optimal regulation of bank capital and liquidity in an economy with financial frictions banks endogenously choose excessive leverage and maturity mismatch in equilibrium as they fail to internalize the risk of socially wasteful fire sales macroprudential regulators can achieve efficiency with simple linear constraints which require less information than pigouvian taxes the liquidity coverage and net stable funding ratios of basel iii can implement efficiency additional microprudential regulation of leverage is required when bank failures are socially costly micro and macroprudential rules are imperfect substitutes optimally macroprudential policy reacts to systematic risk and credit conditions over the cycle while microprudential policy reacts to systematic and idiosyncratic risk

bubbles and crises the role of house prices and credit this paper utilizes quarterly panel data for 20 oecd countries over the period 1975 q1 2014 q2 to explore the importance of house prices and credit in affecting the likelihood of a financial crisis

monetary policy tradeoffs between financial stability and price stability we analyze the impact of interest rate policy on financial stability in an environment where banks can experience runs on their short term liabilities forcing them to sell assets at fire sale prices

the shadow costs of repos and bank liability structure making use of a structural model that allows for optimal liquidity management we study the role that repos play in a bank s financing structure in our model the bank s assets consist of illiquid loans and liquid reserves and are financed by a combination of repos long term debt deposits and equity repos are a cheap source of funding but they are subject to an exogenous rollover risk we show that the use of repos inflicts two types of indirect shadow costs on the bank s shareholders first it induces the bank to maintain higher liquid reserves in order to alleviate the additional default risk second it adds to the cost of long term debt financing these shadow costs limit the bank s appetite for cheap but unstable repo funding this effect is however weakened under poor returns on risky assets access to deposit funding and the depositor preference rule we also analyze the impact of a liquidity coverage ratio payout restrictions and a leverage ratio on the bank s financing choices and show that all these tools are able to curb the bank s reliance on repos

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

gender differences in observed and offered wages in canada 1980 according to the 1981 census of canada the female rate of pay is 30 percent less than the male rate the average female wage offer however is only around one half of that received by males other things being equal slightly more than one half of the difference in observed wages can be explained by diffe rences in wage related characteristics between males and females two fifths of the disparity between wage offers can be explained by the same set of factors analysis of the distribution of wage offers indicates greater wage inequality in the canadian labor market than suggested by study of observed wages

monetary policy as financial stability regulation this paper develops a model that speaks to the goals and methods of financialstability policies there are three main points first from a normative perspective the model defines the fundamental market failure to be addressed namely that unregulated private money creation can lead to an externality in which intermediaries issue too much short term debt and leave the system excessively vulnerable to costly financial crises second it shows how in a simple economy where commercial banks are the only lenders conventional monetary policy tools such as open market operations can be used to regulate this externality while in more advanced economies it may be helpful to supplement monetary policy with other measures third from a positive perspective the model provides an account of how monetary policy can influence bank lending and real activity even in a world where prices adjust frictionlessly and there are other transactions media besides bank created money that are outside the control of the central bank

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

domestic credit growth and international capital flows during the pre crisis period europe experienced substantial cross country variation in domestic credit growth and cross border capital flows we investigate the inter relations between domestic credit growth and international capital flows during the period 1993 2008 with a special focus on the boom period of 2003 2008 we establish that domestic credit growth in european countries is strongly related to net debt inflows but not to net equity inflows this pattern also holds for an extended sample of 54 advanced and emerging economies

the ties that bind monetary policy and government debt management the financial crisis and subsequent economic recession led to a rapid increase in the issuance of public debt but large scale purchases of bonds by the federal reserve and other major central banks have significantly reduced the scale and maturity of public debt that would otherwise have been held by the private sector we present new evidence that tilting the maturity structure of private sector holdings significantly influences term premia even outside crisis times our framework helps explain both the bond yield conundrum and the effectiveness of quantitative easing we suggest that these findings raise two important policy questions one is should a central bank contrary to recent orthodoxy use its balance sheet as an additional complementary instrument of monetary policy to influence as part of the monetary transmission mechanism the long term interest rate the second is how should central banks and governments ensure that debt management properly takes account of the implications for both monetary and financial stability

property rights on first nations reserve land this paper examines the economic effects of existing private property rights on first nations reserves we focus on three regimes of land tenure lawful possession designated land and permits these land regimes have been used to create individual landholdings and grant secure and transferable rights of use of reserve land using confidential census microdata and rich administrative data we find evidence of a positive relationship between the use of these tenure regimes and homeownership rates housing conditions and band s public spending we also observe a positive relationship with average income however this last result is driven by the inflow of a non indigenous population not by improvements in indigenous households income or on reserve employment our findings thus suggest that while reforms to individual property rights on reserve have some positive effects their scope remains limited and they are unlikely to constitute a transformative tool to alleviate poverty on reserve droits de propriete sur les terres de reserve des premieres nations cet article examine les effets economiques des droits prives de propriete existants sur les reserves des premieres nations nous nous attardons sur trois modes de possession des terres la possession legitime les terres designees et les permis ces regimes ont ete utilises a la fois pour creer des proprietes foncieres individuelles sur des terres de reserve mais egalement pour garantir les droits d utilisation proteges et transmissibles y afferant a l aide de micro donnees de recensement confidentielles et d abondantes ressources administratives nous avons decouvert une relation positive entre l utilisation de ces regimes fonciers et les taux d accession a la propriete les conditions de logement et les depenses publiques des premieres nations nous avons egalement observe un rapport positif avec le salaire moyen cependant cette derniere observation resulte davantage d un afflux d une population non autochtone plutot que d une reelle amelioration des revenus des autochtones ou de l emploi dans les reserves ainsi et bien que les reformes pour l acces a la propriete privee dans les reserves ont eu quelques effets positifs nos resultats suggerent que leur portee reste limitee et qu elles ne constituent pas de reels outils de transformation pour reduire la pauvrete dans les reserves

minimum wages for ronald mcdonald monopsonies a theory of monopsonistic competition recent empirical work on the effects of minimum wages has called into question the conventional wisdom that minimum wages invariably reduce employment we develop a model of monopsonistic competition with free entry to analyse the effects of minimum wages and our predictions fit the empirical results closely under monopsonistic competition we find that a rise in the minimum wage raises employment per firm causes firm exit and may increase or reduce industry employment minimum wages increase welfare if they raise industry employment but welfare effects are ambiguous if employment falls

first peoples lost determining the state of status first nations mortality in canada using administrative data we present the most comprehensive set of estimates to date for status first nations mortality in canada we use administrative data from indigenous and northern affairs canada to establish a set of stylized facts regarding status first nations mortality rates from 1974 to 2013 between 2010 to 2013 the mortality rates of status first nations men and boys are highest in nearly all age groups considered with the exception of status girls between the ages of 10 to 14 on reserve status boys between the ages of 15 to 19 have mortality rates nearly four times that in the general population while status girls between the ages of 15 to 19 have mortality rates five times that in the general population we demonstrate substantial regional variation in mortality rates which are correlated with economic factors we document that there has been no improvement in mortality among status women and girls living on reserve in the last 30 years and relative mortality rates for all status people on reserve has not changed in 40 years mortality rates may be worsening among some age groups jel classification j15 j16 i15 i14

savings asset scarcity and monetary policy abstract this paper analyzes optimal monetary policy regarding asset markets in a model where money and savings are essential and asset markets matter the model is able to explain why different regimes for the correlation of real interest rates and stock price dividend ratios exist and offers two explanations why the correlation vanished after 2007 a decrease in inflation or changes in the supply of risky and safe assets the results on optimal policy show that away from the friedman rule fiscal policy can improve welfare by increasing the amount of outstanding government debt if the fiscal authority is not willing or able to increase debt the monetary authority can improve welfare of current generations by reacting procyclically to asset return shocks

presidential address asset price dynamics with slow moving capital i describe asset price dynamics caused by the slow movement of investment capital to trading opportunities the pattern of price responses to supply or demand shocks typically involves a sharp reaction to the shock and a subsequent and more extended reversal the amplitude of the immediate price impact and the pattern of the subsequent recovery can reflect institutional impediments to immediate trade such as search costs for trading counterparties or time to raise capital by intermediaries i discuss special impediments to capital formation during the recent financial crisis that caused asset price distortions which subsided afterward after presenting examples of price reactions to supply shocks in normal market settings i offer a simple illustrative model of price dynamics associated with slow moving capital due to the presence of inattentive investors i address the implications for asset price dynamics of the apparent slow movement of investment capital to trading opportunities the arrival of new capital to an investment opportunity can be delayed by fractions of a second in some markets for example an electronic limit order book market for equities or by months in other markets such as that for catastrophe risk insurance accordingly prices respond to supply or demand shocks with a sharp reaction because of the relatively small subset of capital and thus risk bearing capacity that is immediately available to absorb a shock on short notice such a price impact is substantially reversed over time as additional capital becomes available the amplitude of the immediate price impact and the pattern of the subsequent recovery can reflect many sorts of attention costs to trade as well as institutional impediments to capital movement such as search costs for trading

the size and structure of native white wage differentials in canada the labor market behavior of aboriginal canadians has been little studied by economists this paper establishes some basic empirical regularities concerning the wages of natives in canada applying techniques drawn from the earnings function literature to the statistics canada 1986 census public use sample tape the raw wage gap between aboriginal and white canadians is relatively small compared with that of other disadvantaged groups in north america and it is smaller for women than for males differences in observable characteristics such as education language and region account for as much as 50 percent of the overall white native wage gap

excessive dollar debt financial development and underinsurance we propose that the limited financial development of emerging markets is a significant factor behind the large share of dollar denominated external debt present in these markets we show that when financial constraints affect borrowing and lending between domestic agents agents undervalue insuring against an exchange rate depreciation since more of this insurance is present when external debt is denominated in domestic currency rather than in dollars this result implies that domestic agents choose excessive dollar debt we also show that limited financial development reduces the incentives for foreign lenders to enter emerging markets the retarded entry reinforces the underinsurance problem

who borrows from the lender of last resort understanding why banks borrow from the lender of last resort lolr during a nancial crisis is crucial to understanding the macroeconomic impact of such largescale interventions we document a strong divergence among banks take up of lolr assistance during the nancial crisis in the euro area as banks which borrowed heavily also used increasingly risky collateral we propose four explanations for this divergence