on the link between exchange rate regimes capital controls and monetary policy autonomy in small european countries 1979 2000 we investigate international monetary policy transmission under different exchange rate and capital account regimes in eleven small open economies during the 1980s and 1990s we find no systematic link between ex post monetary policy autonomy and exchange rate regimes capital controls appear to have provided a degree of temporal insulation from foreign monetary policy shocks though not strict autonomy the results are consistent both with short term autonomy for small countries even under fixed exchange rates and an open capital account and with long term dependence under flexible exchange rates and an independent stability target results also indicate that euro area market interest rates are significantly more responsive to the development of the corresponding us rate than were the previous national rates

macroeconomic interdependence under capital controls abstract this paper studies the international transmission of monetary and fiscal disturbances under capital controls the results are contrasted with those that obtain under perfect capital mobility under perfect capital mobility permanent and unanticipated changes in domestic fiscal and monetary policies have no real effects abroad and the adjustment is instantaneous in contrast under capital controls these disturbances are transmitted abroad and adjustment occurs only over time the dynamic adjustment of the world economy is characterized by a negative co movement of domestic and foreign variables such as consumption the real interest rate and the real exchange rate

exchange rate fundamentals forecasting and speculation bayesian models in black markets summary although speculative activity is central to black markets for currency the out of sample performance of structural models in those settings is unknown we substantially update the literature on empirical determinants of black market rates and evaluate the out of sample performance of linear models and non parametric bayesian treed gaussian process btgp models against the random walk benchmark fundamentals based models outperform the benchmark in out of sample prediction accuracy and trading rule profitability measures given future values of fundamentals in simulated real time trading exercises however the btgp achieves superior realized profitability accuracy and market timing while linear models do no better than a random walk copyright 2013 john wiley sons ltd

banking technology and the existence of a consistent output aggregate abstract this paper addresses the question of the existence of a consistent output aggregate in banking specific necessary and sufficient conditions for output aggregation are developed and tested in the context of a second order approximation to any arbitrary multi product bank cost function the analysis provides evidence that a composite aggregate measure of output fails to provide a proper representation of banking technology and therefore previous studies that used aggregate output measures may well be subject to specification errors

testing for nonlinear dependence in daily foreign exchange rates the purpose of this article is to investigate whether daily changes in five major foreign exchange rates contain any nonlinearities although the data contain no linear correlation evidence indicates the presence of substantial nonlinearity in a multiplicative rather than additive form further examination reveals that a generalized autoregressive conditional heteroskedasticity model can explain a large part of the nonlinearities for all five exchange rates copyright 1989 by the university of chicago

bank forward lending in alternative funding environments this paper examines the effects of loan commitments on bank lending behavior in both deposit funding and liability management environments assuming that the bank lends exclusively under commitments and that the number of commitments exercised is uncertain the bank must choose its supply of commitments given this choice the bank becomes a passive lender to commitment holders our focus on forward credit markets sheds new light on the private bankers assertion that they do not directly determine their level of lending but merely accommodate the credit needs of their customers similarly the central banker s claimed inability to control monetary aggregates in the short run becomes understandable in a new context it is shown that the advent of liability management will reduce the volume of loan commitments and the expected size of the bank and of the banking system it is also shown that increased uncertainty regarding borrower takedown behavior diminishes the volume of commitments expected bank and banking system size

dual exchange rates in europe and latin america this article uncovers some important empirical regularities surrounding the operation of formal dual exchange rates in europe and latin america in the 1970s and 1980s although there are some parallels between the european and latin american experiences there are also interesting differences in terms of the size and nature of the distortion created by two official exchange rates the response of the distortion to foreign interest rates real commercial exchange rates and domestic budget deficits and the motives for adopting this exchange rate regime empirical work on dual exchange rate regimes is made difficult by the transitory nature of these regimes and by frequent changes in institutional practices

nonlinear nonparametric nonessential exchange rate estimation a wide variety of empirical exchange rate mo dels have been estimated over the years but despite the considerable energies that have been devoted to this work the economics profession has remarkably little to show for itself there is little evidence that conclusively links the bilateral exchange rates of typical oecd countries to fundamental macroeconomic determinants of exchange rates such as money output relative prices or interest differentials coefficient estimates are notoriously unstable and frequently mis signed compared with theoretical predictions exchange rate equations do not fit particularly well and forecast no better than the simplest naive alternatives recently a new class of exchange rate models was introduced by paul krugman 1988 these models provide a potential reason for the poor performance of traditional exchange rate models because they are nonlinear if the exchange rate actually depends in a nonlinear way on exogenous macroeconomic fundamentals linear exchange rate models may work poorly even though the exchange rate is closely linked to fundamentals in this paper we provide a brief sketch of some of this work as well as some preliminary evidence on the actual performance of these nonlinear models in our empirical analysis we use a nonparametric estimator that can handle a wide variety of nonlinear phenomena we examine fixed exchange rate regimes where nonlinearities should be quite easy to detect however we do not find strong empirical support for the hypothesis that the incorporation of nonlinear effects significantly improves models of exchange rate determination in section i we briefly review the theoretical literature on nonlinear target zone exchange rate models linking this work to the tests for intrinsic bubbles we draw heavily on recent papers by kenneth froot and maurice obstfeld 1989a b our methodology and data are discussed in section ii section iii contains new empirical tests for nonlinearities in exchange rate models

an empirical investigation of changes in scale economies for the commercial banking firm 1979 1986 the period of the 1980s represents a particularly turbulent time for the banking industry a number of technological and regulatory changes have occurred including the elimination of regulation q which had limited the explicit interest payments that banks could pay on some types of deposits it would be expected that these changes would affect the structure of costs for banks the behavior of the cost function is studied over the 1979 1986 time period and in contrast to previous studies using earlier data increasing economies of scale are found in the later years for banks in both unit and branch banking states these results indicate that there may be increased cost pressure for smaller banks to become larger either through mergers and acquisitions or through internal growth this may lead to further consolidation pressures within the industry and reductions in the overall number of banking firms copyright 1991 by ohio state university press

real and monetary determinants of real exchange rate behavior theory and evidence from developing countries abstract this paper develops a dynamic model of real exchange rate rer behavior in developing countries a three goods economy exportables importables and non tradables is considered residents of this country hold domestic and foreign assets and there is a dual exchange rate regime there is a government that consumes importables and non tradables a distinction is made between equilibrium and disequilibrium movements of the rer the determinants of real exchange rate misalignment are studied with emphasis placed on the role of devaluations and balance of payments crises the implications of the model are tested using data for 12 developing countries the results obtained are generally favorable for the model the issue of rer stationarity is also analyzed

exchange rate behavior with currency inconvertibility abstract the paper analyzes exchange rate dynamics in a world where the domestic currency is inconvertible into foreign currency and there is a black market for foreign exchange the official exchnage rate is thus set by policy but the black market rate is determined by portfolio balance the stock of domestic money changes with the reported current account and the stock of foreign assets of the private sector changes with smuggling and other unreported current account transactions the effects of capital and current account disturbances as well as the effects of changes in the level and the rate of crawl of the official rate on the black market premium and on the currency substitution ratio are analyzed in variants of the basic model

the short term mortality consequences of income receipt many studies find that households increase their co nsumption after the receipt of expected income payments a result inconsistent wit h the life cycle permanent income hypothesis consumption can increase adverse healt h events such as traffic accidents heart attacks and strokes in this pape r we examine the short term mortality consequences of income receipt we find that mortality increases following the arrival of monthly social security payments re gular wage payments for military personnel the 2001 tax rebates and alaska permane nt fund dividend payments the increase in short run mortality is large potential ly eliminating some of the protective benefits of additional income

real exchange rate behaviour evidence from black markets the behaviour of real exchange rates relative to the us dollar is examined using monthly data obtained from the black markets for foreign exchange of eight asian developing countries the data span is 31 years the black market real exchange rates do not show excess volatility during the recent float which is in sharp contrast to the results reported elsewhere unit root tests in heterogeneous panels and variance ratio tests confirm their stationarity thus we find support for ppp but not for the survivorship bias froot and rogoff 1995 there is little evidence of segmented trends issues raised by rogoff 1996 of whether ppp would hold across countries with differing growth experience and lothian and taylor 1996 of whether the degree of relative price volatility may bias results in favour of mean reverting real exchange rates are addressed copyright 2000 john wiley sons ltd

can the markov switching model forecast exchange rates abstract a markov swirching model is fit for 18 exchange rates at quarterly frequencies the model fits well in sample for many exchange rates by the mean squared error criterion the markov model does not generate superior forecasts to a random walk or the forward rate there appears to ne some evidence that the forecasts of the markov model are superior at predicting the direction of change of the exchange rate

behavioral responses to inheritance tax evidence from notches in france abstract for the first time we exploit quasi experimental variation to investigate the impact of inheritance taxation on wealth accumulation using bunching and difference in differences methods we directly estimate several behavioral responses during lifetime rather than relying solely on observations at death our empirical findings shed new light upon wealth accumulation and bequest motives taken together the small responses to inheritance tax estimated cannot be supported by the desire to retain control over wealth

measuring permanent responses to capital gains tax changes in panel data the authors use panel data and information about differences in state tax rates to separate the effects of transitory and permanent tax rate changes on capital gains realizations behavior the estimated effect of permanent change is substantially smaller than the effect of transitory change the difference is even larger than differences between estimates from past micro data studies which have primarily measured the transitory effect and time series studies which have primarily measured the permanent effect the authors results resolve a long standing conflict between micro data and time series studies of how marginal tax rates affect capital gains realizations behavior copyright 1994 by american economic association

dying to save taxes evidence from estate tax returns on the death elasticity this paper examines data from u s federal tax returns to shed light on whether the timing of death is responsive to its tax consequences we investigate the temporal pattern of deaths around the time of changes in the estate tax system periods when living longer or dying sooner could significantly affect estate tax liability we find some evidence that there is a small death elasticity although we cannot rule out that what we have uncovered is ex post doctoring of the reported date of death

empirical regularities in black markets for currency abstract this paper develops a model of the black or parallel market foreign exchange rate this rate is seen to depend upon the level of the official rate the unobserved equilibrium rate the premium offered for exchange sold through the black market and government reserve level policies the model is then empirically estimated for 10 countries over a period from 1957 through 1983 the results generally support the model specified by theory additionally the paper provides weak form tests concerning the efficiency of the black market the results cannot reject the hypothesis that the current black market rate incorporates all relevant historical price information

bibliography of franco modigliani s publications 1944 1985 ed in the c f a digest the institute of chartered financial analysts vol 11 no 4 fall 1981 pp 15 16 166 financial markets the decades ahead an m i t perspective proceed ings of a symposium for senior executives the industrial liaison program of the massachusetts institute of technology june 1980 167 utility analysis and aggregate consumption functions an attempt at integration with richard brumberg the collected papers of franco modigliani the life cycle hypothesis of saving vol 2 ed a abel m i t press cambridge ma 1980 pp 128 97 168 the trade off between real wages and employment in an open economy belgium with jacques h dreze c o r e universite catholique de louvain discussion paper no 7947 1980 reprinted in european economic review 15 1981 pp 1 40 169 the stucture of financial markets and the monetary mechanism with lucas papademos controlling monetary aggregates iii conference series number 23 federal reserve bank of boston 1980 170 a new look at the monetary mechanism the 1980 w a mackintosh lecture queen s university discussion paper no 447 kingston ontario canada 1981 171 uma nova abordagem do mecanismo monetario e sue relacao com a estrutura financeira the monetary mechanism revisited and its relation with the financial structure revista de econometria sociedade brasileira de econometria 1 1 april 1981 pp 5 30 172 comment on scale of macro econometric models and accuracy of fore casting by g fromm and l r klein in j kmenta and j b ramsey eds large scale macro econometric models north holland 1981 pp 393 4 173 comment on where have all the flowers gone economic growth in the 1960s by robert m solow in j a pechman and n j simler eds economics in the public service papers in honor of walter w heller ww norton co inc 1981 pp 75 83 scand j of economics 1986 this content downloaded from 157 55 39 141 on mon 18 jul 2016 05 30 52 utc all use subject to http about jstor org terms

a trading approach to testing for predictability we propose a market timing test for conditional mean independence of financial returns the new excess predictability ep test statistic has an interpretation of a properly normalized return of a certain trading strategy we discuss similarities of the ep test to the popular directional accuracy da test of pesaran and timmermann power properties of the ep test are advantageous and size properties are comparable to those of the da test we illustrate application of the test using weekly data on the s p500 index

risk sharing on the labour market and second best wage rigidities the starting point of the analysis is that a significant proportion of the labour force is not covered by efficient labour contracts in particular the non existence of forward labour contracts limits the opportunity of efficient risk sharing through private arrangements among young labour suppliers and capital owners in such a context state dependent labour taxes and employment subsidies would be required to achieve ex ante pareto efficiency in the absence of employment subsidies a certain limited degree of downward wage rigidity is in general pareto superior to full wage flexibility at the second best optimum so defined productive efficiency is sacrificed in some states in order to achieve greater efficiency in risk sharing thus the unemployment associated with wage rigidity is inefficient though voluntary due to the levels of benefits and second best efficient a limited degree of wage discrimination by hiring date is typically part of the second best policy

the role of fixed costs and cost complementarities in determining scope economies and the cost of narrow banking proposals narrow banking proposals would separate insured deposits from most types of bank lending using data from large u s banks the authors examine the extent to which narrow banking proposals are likely to result in increased production costs production costs will rise for nonjoint provision of deposit and loan services if there are cost complementarities in producing the two outputs jointly or if joint production enables banks to spread their fixed costs more effectively unlike standard cost function approaches the authors methods allow them to estimate the fixed cost and cost complementarity effects separately they find the net production cost consequences of narrow banking to be negligible copyright 1993 by university of chicago press

fiscal policy and the current account deficits and trade jose vinals does the balance of payments act as an external constraint on the design of domestic economic policy in practice most governments believe it does yet popular discussion is sometimes confused this paper begins by evaluating the nature of the external constraint and the extent to which it can adequately be measured by the current account of the balance of payments it is often argued that a fiscal expansion will increase employment it is also widely held that a fiscal expansion necessarily leads to a deterioration of the current account while these propositions may hold in specific circumstances neither is generally true the theoretical basis of the two propositions is examined and compared with recent international experience when important changes in fiscal stance occurred the popular presumptions are confirmed by recent experience in the us the uk and germany but france is a counterexample to the first and spain to the second the important policy implication is that one can identify both in theory and in practice clear circumstances in which expansionary fiscal policy is appropriate and will not be thwarted by external considerations

exchange rate management viewed as tax policies abstract the paper develops an analytical framework which demonstrates that along the lines of the celebrated lerner symmetry theorem the various forms of exchange rate management are equivalent to corresponding tax policies to highlight the salient issues we consider two specific categories of exchange rate policies the first is a dual exchange rate regime which separates exchange rates for commercial and for financial transactions and the second is a unified exchange rate system in which the country unilaterally pegs its exchange rate at the same rate for all transactions we show that the dual exchange rate policies can be usefully cast as distortionary taxes on international borrowing and unified pegged exchange rate policies can be usefully cast as lump sum tax cum subsidy policies the equivalence between the various characteristics of exchange rate management and tax management suggests that exchange rate analysis could be usefully incorporated into the broader framework of the analysis of fiscal policies a two country model of the world economy is used to demonstrate the international transmission mechanism of these policies

scale economies and cost complementarities in commercial banks on and off balance sheet activities abstract bank off balance sheet obs activities have grown dramatically and have become significantly important especially at large banks we investigate whether failure to incorporate obs products may lead to a misspecification problem models that exclude deposits from the output specification suggest economies of scale which vanish when deposits are included we find that inclusion of obs products has little effect on the scale economies measures with only a few exceptions the results provide no evidence of cost complementarities in joint production the tremendous growth of bank obs activities in the 1980s may be explained by the very small approximately zero pecuniary cost of these activities

credit rationing deregulation and race in mortgage lending in the united states 1960 90 this paper examines discrimination in mortgage lending in teh united states over three decades in 1960 to 1990 we focus on whether deregulation increased federal oversight and enhanced competition reduce discrimination as becker s theory suggests becker 1971 we find that discrimination is evident over the three decades taken together is prevalent from 1960 to 1980 but is absent in the data from 1980 to 1990 this finding strongly supports becker hypothesis preferences for discrimination appear to be offset by the higher costs fo engaging in them after 1980

a note on cost structure and economies of scale in greek banking abstract this note studies the greek banking industry in 1980 1989 in order to estimate a representative cost structure functional form and search for economies of scale the constructed model uses a translogarithmic cost function that includes the size of assets capital labor and technological progress by using this model which has been used by benston et al 1982 hunter and timme 1986 and others we have been able to estimate for the first time an econometric form of the costs in greek banking and we have been able to investigate economies of scale in the greek banking industry although operating cost scale economies do exist total cost scale economies were not present this has been shown through the utilization of a large sample of pooled data of all greek banks for a period of ten years and the use of two other samples of large and small banks moreover by exploiting the properties of the model we shall be able to show whether technological progress has been a factor which lowers bank costs

testing long horizon predictive ability with high persistence and the meese rogoff puzzle a well known puzzle in the international finance literature is that a random walk predicts exchange rates better than economic models meese and rogoff 1983a b and 1988 this paper offers a potential explanation for this finding when exchange rates and fundamentals are highly persistent long horizon forecasts of economic models are asymptotically biased by the estimation error in the parameter that measures the persistence when this bias outweighs the benefits from exploiting economic information the random walk model will forecast better this happens even if the economic model is the true data generating process the reason is that a random walk model imposes a unit root rather than estimates it the paper thus proposes a test for equal predictive ability in the presence of highly persistent variables when applied to the meese rogoff exercise this test shows that the poor forecasting ability of economic models does not imply that the models are not a good description of the data

living to save taxes does taxation affect the timing of death this is important as an example of how behavior might be affected by economic incentives we study how three changes in swedish inheritance taxation 2004 2005 have affected daily all cause mortality our first main result is that mortality decreased by 16 percent the day before the beginning of expected tax reductions second there was no corresponding effect before an unexpected tax reduction

cost structure and technical change in rural banking abstract using the multi product translog cost function this paper examines the cost structure and technical change occurring within the novel ghanaian rural banks the results of the seemingly unrelated error components model indicate substantial unexploited economies of scale in individual products as well as in overall intermediation there is presence of pairwise complementarity between loans and government securities and between deposits and government securities but absence of pairwise complementarity between loans and deposits overall capital using and labour saving technical change has occurred but efficiency loss in deposit mobilization outweighs the efficiency gains in government securities and lending activities operation of agencies reinforces the overall efficiency loss the rural banks must not be hindered from expanding but in any growth strategy deposit mobilization should take a central position and the cost of operating agencies watched closely

black markets for foreign exchange real exchange rates and inflation abstract the black market foreign exchange premium is a tax on exports creating a conflict between the financing of government spending and the allocative goal of stimulating exports the premium is solved for in a model that includes private portfolio choice dual exchange markets and money financing of the fiscal deficit the inflationary implications of switching to floats as a means of unifying official and black market rates are then analyzed inflation could rise substantially if the lost revenues from exports are replaced with a higher tax on money the paper is motivated with examples from sub saharan africa

seigniorage and the case for national money in countries with high rates of inflation there is typically movement away from the use of the local currency the paper analyzes the costs and benefits of using a local currency with emphasis on the seigniorage foregone by using a foreign money even if it should be desirable for a country to fix its exchange rate it still loses seigniorage if it does not use its own money the case for using a foreign money then turns largely on the superior discipline imposed on domestic policymakers by removing their control over the money supply alternative methods of imposing discipline are discussed estimates of the amount of seigniorage raised by different governments are presented seigniorage amounts in some cases to about 10 percent of government revenue estimates are also presented of both the annual flow and one time stock costs of giving up use of domestic currencies and instead using the dollar the flow cost is typically about 1 percent of gnp and the stock cost is around 10 percent of gnp

do euro exchange rates follow a martingale some out of sample evidence abstract traditional autocorrelation and variance ratio tests are based on serial uncorrelatedness rather than martingale difference as such they do not capture potential nonlinearity in mean which could lead to misleading inferences in favor of the martingale hypothesis this paper employs various parametric and nonparametric nonlinear models as well as several model comparison criteria to examine the potential martingale behavior of euro exchange rates in the context of out of sample forecasts the overall evidence indicates that while martingale behavior cannot be rejected for euro exchange rates with major currencies such as the japanese yen british pound and us dollar there is nonlinear predictability in terms of economic criteria with respect to several smaller currencies

the multibank holding company effect on cost efficiency in banking abstract this paper tests the hypothesis that differences in the organizational form embodied in independent banks one bank holding companies and multibank holding companies result in differences in operating cost efficiency the transaction and agency cost paradigms for analysis of organizational efficiency provide theoretical motivation for the hypothesis the effects of organizational form on bank operating expenses for individual banks are evaluated on subsamples divided into quartiles based on total revenue results indicate that for banks having revenues in the lowest quartile both one bank and multibank holding company affiliates are cost efficient relative to independent banks multibank holding company affiliates are cost efficient relative to both one bank affiliates and independent banks for banks in the interquartile range no significant differences in cost efficiency are noted banks in the highest revenue quartile relative efficiency at the organizational level is also evaluated results provide evidence of lower operating costs for banking operations of both multibank and one bank holding company organizations relative to independent banks taken as a whole the results imply that holding company affiliation conveys cost advantages to banking units below the 75th revenue percentile

exchange rate forecasts with the michigan quarterly econometric model of the us economy abstract gandolfo et al journal of banking and finance 14 1990 965 992 have shown that their continuous time model of the italian economy produces better ex post out of sample forecasts of the lira exchange rate than either existing structural or random walk models when the michigan quarterly econometric model is used it is found that ex post out of sample forecasts of the trade weighted value of the us dollar produced by the model are also superior to forecasts of a random walk model however ex ante forecasts in which all the exogenous as well as the endogenous variables are forecast are less accurate than those produced by the random walk the price of imported goods in foreign currency an exogenous variable in both the michigan and italian econometric models is the key variable in the michigan model which explains the divergence of the ex ante and ex post forecasting results

exchange rate differential and balance of payments under dual exchange markets abstract this paper develops a model of an economy that uses two exchange markets an official market in which the exchange rate is determined by central bank intervention and a free market in which the exchange rate is determined by market forces the official market handles selected imports and exports while the free market handles the remaining imports and exports and capital transactions the model is used to discuss the effects of various policies on the differential between the free and the official exchange rates and on the balance of payments

time varying parameters and the out of sample forecasting performance of structural exchange rate models varying parameter estimation techniques based on recursive application of the kalman filter are used to improve the predictive performance of a class of monetary exchange rate models i find that allowing estimated parameters to vary over time enhances the models forecasting performance for the dollar pound dollar mark and dollar yen exchange rates contrary to earlier results in the literature ex post forecasts for the dollar mark rate compare favorably with those obtained from the naive random walk forecasting rule

intermediation and cost determinants of large bank liability composition abstract a translog profit function is estimated for an aggregate of large u s money center banks over 1970 1975 estimates of liability substitution elasticities and own price elasticities of demand are obtained and contrasted with results from earlier partial equilibrium studies statistical analyses led to the rejection of two commonly held propositions in banking 1 that the aggregation of all bank debt to obtain a debt equity ratio is valid and 2 that asset structure can be ignored when liability composition is being determined a mixed full information maximum likelihood estimation technique was used in estimation

taxes and the timing of births because the tax savings of having a child are a realized only if the birth takes place before midnight january 1 the incentives for the marginal birth are substantial using a sample of children from the national longitudinal survey of youth we find that the probability that a child is born in the last week of december rather than the first week of january is positively correlated with tax benefits we estimate that increasing the tax benefit of having a child by 500 raises the probability of having the child in the last week of december by 26 9 percent

do taxes matter the impact of the tax reform act of 1986 do taxes matter is the first systematic examination of the actual effects of the tax reform act of 1986 the most important u s income tax reform of the last four decades it presents basic information on and an analysis of a variety of different aspects of economic behavior in order to discover whether the observed changes coincide with the predictions of standard public finance models prior to implementation of the new law supporters and opponents made numerous forecasts about its effect on savings corporate investment and other major determinants of the country s economic health the general finding of these original contributions is that the effects of tax reform turned out to be smaller than had been anticipated commissioned by the office of tax policy research of the university of michigan eight of the studies focus on different sectors of the economy reviewing the predictions and carefully analyzing the evidence to determine actual effects the ninth study draws together the results to find lessons for future changes in tax policy joel slemrod is professor of business economics and public policy and director of the office of tax policy research at the university of michigan contents the economic impact of tax reform act of 1986 joel slemrod investment tax policy and the tax reform act of 1986 alan j auerbach kevin hassett the impact of the 1986 tax reform on personal saving jonathan skinner daniel feenberg effects of the tax reform act of 1986 on corporate financial policy and organizational form roger h gordon jeffrey k mackie mason taxation and housing markets preliminary evidence on the effects of recent tax reforms james m poterba the impact of the tax reform act of 1986 on foreign direct investment to and from the united states joel slemrod the impact of tax reform on charitable giving a 1989 perspective charles t clotfelter the impact of the tax reform act of 1986 on state and local fiscal behavior paul n courant edward m gramlich foreign responses to u s tax reform john whalley lessons for tax reform henry j aaron

estimation of implicit utility models we explore the possibility of estimating demand models derived from implicit function representations of preferences we find that the use of standard fiml estimation methods and computer codes results in unusually troublesome methodological problems we propose an alternative non standard iterative algorithm for computing the fiml estimates in any case this class of models is very difficult to estimate

on the effectiveness of capital controls the experience of colombia during the 1990s abstract this paper analyzes the effectiveness of capital controls in colombia the evidence presented points towards a relative inability of the measures adopted to reduce the level of capital inflows nonetheless the evidence suggests that non remunerated deposits have been successful in inducing a recomposition of foreign liabilities in favor of long term maturities it is likely that this is a positive result as it has made the country less vulnerable to a reversal in capital flows in this sense controls may be viewed as an effective way of internalizing the negative externality imposed by short term maturities

the black market for foreign exchange an international comparison abstract the dornbusch et al 1983 model for the determination of the black market foreign exchange premium is modified and then estimated for 19 countries for various periods during 1970 1979 in which we identified the existence of a black market for foreign exchange the outstanding result is the almost total uniformity of the estimated coefficients of the explanatory variable expected profits from black market transactions and the small spread of the elasticities of the black market premium with respect to the expected profits and the real official exchange rate

branching scale economies and banking costs abstract in this paper we develop and estimate a model of bank costs based on a theory of the branch cost function first we show that convenient branch location is important to banking customers and implies that banks do not necessarily operate branches at minimum average cost this theoretical result provides a rationale for including branch variables in the bank cost function second we estimate a statistical cost equation derived explicitly from assumptions about the branch cost function and including branch output variables our empirical results suggest substantial economies of scale at the branch level but no economies from expansion by branching finally we show that the resulting cost structure of the banking industry does not imply that a highly concentrated banking structure is necessary for efficiency thus economies of scale would not be expected to force small banks out of the market even if current restrictions on interstate banking are liberalized

a multiproduct cost study of savings and loans this paper investigates the cost structure of savings and loans most studies of financial institutions have failed to take into account the multiproduct nature of these institutions using the multiproduct approach the existence of subadditivity multiproduct global and product specific economies of scale and scope and substitutability between inputs is investigated a translogarithmic cost function is estimated using 1982 data on california savings and loans restrictive functional forms also estimated are rejected standard errors for the statistics calculated are estimated and various statistical tests are conducted previous authors have not calculated standard errors for these statistics no evidence of subadditivity in the industry is found in order to investigate the impact of deregulation on the financial services industry it is necessary to know the cost structure of the industry optimal firm size and product mix can be determined once the structure is known the presence of scale economies would imply that smaller firms or entering firms that operate at a small scale would be at a cost disadvantage compared with larger established firms a finding of economies of scope i e economies of joint production would imply that firms that were specialized would be at a cost disadvantage and that regulations that restrict the outputs a firm is allowed to produce may lead to inefficient production

the monetary model strikes back evidence from the world abstract we revisit the dramatic failure of monetary models in explaining exchange rate movements using the information content from 98 countries we find strong evidence for cointegration between nominal exchange rates and monetary fundamentals we also find fundamentals based models very successful in beating a random walk in out of sample prediction

effects of shorter hours on employment in disequilibrium models abstract in this paper the employment effects of a wage compensated and non compensated reduction of standard working time are examined in the context of disequilibrium theory in disequilibrium models with exogenous working time noncompensated shorter standard hours increase employment in both regimes keynesian and classical unemployment wage compensation reduces the employment response at a regime dependent rate if working time is endogenized by taking into account overtime effects the employment response of shorter hours is positive in keynesian unemployment and negative in classical unemployment wage compensation increases the employment effect in the keynesian regime and decreases it in the classical regime a model is presented that allows for hours as well as capital stock adjustment and integrates non competitive price setting

modeling the banking firm a survey this paper reports on the status of the literature on micro bank modeling and assesses our understanding of the banking firm s optimal behavior this is no mean task for much has been written on banking broadly defined over the past couple of decades the review is developed in pieces each major subproblem is outlined and the analysis used to deal with the issue explicated this is not the best way to summarize the development of a field it should be immediately recognized one would prefer to have a smooth continuum of development moving the frontier of knowledge evenly through time and across subareas yet this is rarely the way a field develops more likely individual questions attract attention and are the subjects of a substantial number of contributions after a time the field moves on to the new area of interest the banking field is no exception before embarking upon the review however a couple of lines should be devoted to previous attempts there have been essentially three first pyle 1972 analyzes the uncertainty portfolio models at a time when little existed in the literature and hence one finds the review a bit vague and sketchy baltensperger s contributions 1978 1980 are the next serious and rather extensive reviews the quality of these

determinants of the spread in a two tier foreign exchange market abstract the determinants of the spread between the commercial and financial exchange rates are analyzed in a two tier exchange market model derived from utility maximization contrary to popular belief it is found that domestic policy and non policy variables have no effect on the spread only foreign factors matter

interest rates and bank portfolio adjustments abstract we test empirically to determine if the relation between banks portfolio of assets and liabilities and interest rate is stable several possible causes of instability are considered the econometric techniques employed allow for continuous change in the structure of the empirical model in all cases stability of the model is strongly rejected we find that the portfolio interest rate relationship depends on the level of interest rates and exogenous assets as well as their rate and direction of change

technical change organizational form and the structure of bank production of those technological characteristics related to the nature of competition among firms in an industry or market scale economies and technical change are especially important economies of scale are said to exist when an equiproportional increase in all inputs results in a greater than proportional increase in output or equivalently when an increase in output at constant input prices leads to a less than proportional increase in total costs thus average costs decline as output expands depending upon the extent to which costs decline as output increases regulation of the firms in the industry may be necessary l the literature analyzing scale economies in commercial banking is voluminous the early studies on scale economies in banking include those by benston 1965 1972 greenbaum 1967 murphy 1972 and bell and murphy 1968 more recent studies include those by benston hanweck and humphrey 1982 and clark 1984 2 this literature has established that mild scale economies exist in bank

the bid ask spread in the black market for dollars in brazil note several studies have offered empirical support for the demsetz bagehot theory of dealer services and bid ask spreads the tests have always concentrated on bid ask spreads or price dispersion in cross section studies of securities markets thus stoll 1978 for example tested a theory of the bid ask spreads in the over the counter market for common stocks and garbade and silber 1976 studied price dispersion in the market for u s government bonds in each case the object was to determine the spreads associated with different securities depending on their characteristics such as trading volume or risk the present study by contrast focuses on the time series of the bid ask spread we report on the bid ask spreads in the black market for dollars and show support for the theory of spreads in a market far less institutionalized than the u s capital markets moreover structural features of the market not present in security markets are shown to influence the spread the theory of bid ask spreads was developed by demsetz 1968 and has since been extended in a number of papers among which garbade and silber 1976 and ho and stoll 1981 are of particular interest for our questions the literature is comprehensively reviewed in cohen maier schwartz and whitcomb 1979 the theory views dealers as providers of liquidity services the exchange houses provide a liquidity service in standing ready to buy or sell securities in our case u s dollarsthus saving potential customers the need to search and the possibility of illiquidity in exchange for this service the dealer can charge a fee that takes the form of a bid ask spread the spread covers the costs of running the establishment and specific costs of making the market there are in particular two costs of market making one is the opportunity cost of carrying a cash inventory and the other arises from the risk of dealing with customers who have potential inside information the inventory costs arise because there is not perfect synchronization between inflows and outflows the cost is given by the interest rate times the average inventory position customers with inside information pose a risk because they may have privileged access to news about exchange rate changes trade restrictions or political events that will influence the market these customers cannot be dis

the transmission of disturbances under alternative exchange rate regimes with optimal indexing the paper develops a general stochastic macroeconomic model that can be used to study the international transmission of disturbances under four alternative exchange rate systems uniform flexible exchange rates uniform fixed exchange rates and two versions of two tier exchange rates the analysis makes two general points first one cannot assume stability of structure when assessing the consequences of alternative exchange rate regimes for example the slope of the aggregate supply curve and the rationally formed expectations in the asset markets can respond dramatically to the government s choice of exchange rate regime second exchange rate regimes that provide full insulation from foreign disturbances may nevertheless be inferior to other regimes in terms of their ability to maximize social welfare

special exchange rates for capital account transactions the governments of developing countries are constrained in the effective implementation of domestic policy by the interlinkages of national and international financial markets domestic macroeconomic conditions are influenced by the interaction of national and world interest rates and prices and through the impact of real exchange rates on employment the domestic responses to changes in these factors are often strong and rapid this article suggests that dual rates can indeed be used successfully as a strictly transitory policy to offset sudden shocks in capital markets the article develops models which indicate why these dual systems are able to prevent inflationary or recessionary pressures caused by a misaligned exchange rate in the short term while free capital account rates can cut the flow of capital flight however a dual rate system cannot prevent a possibly equivalent loss of foreign reserves that will ultimately result because of the impact of the overvaluation of the commercial rate on the trade balance in the longer term a dual rate system with a misaligned commercial rate exacerbates the government s deficit ultimately real wages must be cut and real interest rates raised to generate sufficient foreign exchange to finance the external debt thus a dual rate works well if the commercial rate is maintained close to the equilibrium level

short run cost inefficiency of commercial banks a flexible stochastic frontier approach we adopt the intermediation approach and use a flexible stochastic frontier to examine the cost efficiency of united states commercial banks with total assets in excess of million we find an average overall inefficiency of just under 10 percent a level somewhat lower than found in previous work our analysis of intra industry variation concludes that inefficiency generally rises with bank size further banks that have branching networks either domestic or foreign have higher inefficiency on average but at the same time inefficiency falls as the number of offices in the branch network expands state level data on the ease of serviceing the market competition from savings institutions and the financial sophistication of depositors significantly affect bank inefficiency generally with the expected signs finally our findings suggest that regulatory changes that increase capital requirements may lead to increased bank efficiency in the short run copyright 1994 by ohio state university press

the black market for dollars in chile abstract this study investigates the effects of foreign exchange restrictions on the black market premium for dollars in chile over the period 1975 1984 the model emphasises the interaction of stock and flow conditions in the black market for dollars our results support the view that the real exchange rate the official depreciation adjusted interest rate differential the dollar value of peso assets valued at the official exchange rate and foreign exchange restrictions are important determinants of the black market premium

returns to scale and input substitution for large u s banks the united states commercial banking industry has experienced significant changes in recent years the recent wave of mergers and the near term prospects of interstate banking suggests that the industry is moving toward much larger average banking organizations rhoades 1985 will a more concentrated banking industry result in lower costs due to scale economies we address this question by examining the cost function for large banks numerous studies of economies of scale in banking exist generally tracing their roots to the classic papers by benston 1965 and bell and murphy 1968 a good review of the most recent studies can be found in clark 1988 the majority of the papers uses samples of smaller banks that is under 1 billion in deposits finding generally that economies of scale are quickly exhausted and that further increases in bank size occur at constant or possibly increasing cost the extrapolation of previous findings for samples of smaller banks to large banks may be problematic especially in the current environment first large banks service a different mix of markets and customers than small banks suggesting that large and small banks probably face different cost structures second the process of deregulation may have rendered the results of prior studies moot since the data pertain to periods before significant deregulation since we

the importance of bequests and life cycle saving in capital accumulation a new answer as the workhorse of consumption and saving research for the past four decades the life cycle model has proved flexible and useful for examining a variety of questions in a classic paper albert ando and franco modigliani 1963 p 56 stated a key assumption of the basic model t he individual neither expects to receive nor desires to leave any inheritance although the authors contended that the absence of a bequest motive was not critical to the heart of their results the assumption set off a long standing battle over the relative importance of different motives for saving in an influential study laurence kotlikoff and laurence summers 1981 estimated that a large fraction of the u s capital stock was attributable to intergenerational transfers modigliani and his collaborators vigorously disagreed and based on their own empirical work claimed that life cycle saving was the primary source of capital accumulation modigliani 1988 subsequent work has failed to reach a consensus since this debate began an important advance in the consumption literature has been the incorporation of uncertainty in life cycle models see e g r glenn hubbard et al 1995 we argue that allowing for uncertainty resolves the controversy over the importance of life cycle and bequest saving by showing that these motives for saving are overlapping and cannot generally be distinguished a dollar saved today simultaneously serves both a precautionary life cycle function guarding against future contingencies such as health shocks or other emergencies and a bequest function because in the likely event that the dollar is not absorbed by these contingencies it will be available to bequeath to children or other worthy causes under this view households have a bequest motive but bequests are given i e the motive is operative in only some states of the world wealth is something like traveler s checks you take them along on vacation just in case but odds are they will remain uncashed and available for sundry goods after the journey is complete we first demonstrate the result using a simple model and then argue that this approach reconciles the apparent importance of bequests with households declared focus on life cycle saving finally we consider implications of our analysis

an economic evaluation of empirical exchange rate models this paper provides a comprehensive evaluation of the short horizon predictive ability of economic fundamentals and forward premiums on monthly exchange rate returns in a framework that allows for volatility timing we implement bayesian methods for estimation and ranking of a set of empirical exchange rate models and construct combined forecasts based on bayesian model averaging more importantly we assess the economic value of the in sample and out of sample forecasting power of the empirical models and find two key results 1 a risk averse investor will pay a high performance fee to switch from a dynamic portfolio strategy based on the random walk model to one that conditions on the forward premium with stochastic volatility innovations and 2 strategies based on combined forecasts yield large economic gains over the random walk benchmark these two results are robust to reasonably high transaction costs

what happens when you tax the rich evidence from executive compensation this paper examines the responsiveness of taxable income to changes in marginal tax rates using detailed compensation data on several thousand corporate executives from 1991 to 1995 the data confirm that the higher marginal rates of 1993 led to a significant decline in taxable income indeed this small group of executives may account for as much as 20 percent of the aggregate change in wage and salary income for approximately the one million richest taxpayers over this time period one person alone can account for more than 2 percent the decline however is almost entirely a short run shift in the timing of compensation rather than a permanent reduction in taxable income the short run elasticity of taxable income with respect to the net of tax share exceeds one in this sample but the elasticity after one year is at most 0 4 and probably closer to zero breaking out the tax responsiveness of different types of compensation shows that the large short run responses come almost entirely from a large inc

linear non linear and essential foreign exchange rate prediction with simple technical trading rules abstract this paper investigates the predictability of spot foreign exchange rate returns from past buy sell signals of the simple technical trading rules by using the nearest neighbors and the feedforward network regressions the optimal choices for nearest neighbors hidden units in a feedforward network and the training set are determined by the cross validation method which minimizes the mean square error although this method is computationally expensive the results indicate that it has the advantage of avoiding overfitting in noisy environments and indicate that simple technical rules provide significant forecast improvements for the current returns over the random walk model

the trade off between real wages and employment in an open economy belgium abstract the purpose of this paper is twofold first we discuss the nature and quantitative order of magnitude of the trade off between real wages and employment in the small open economy belgium second we draw policy conclusions from our positive analysis and compare income policies with alternative approaches to employment stimulation including shorter working hours and currency depreciation to study the trade off between real wages and employment we treat external balance as a binding constraint on demand management an exogenous increase in real wages affecting adversely the competitiveness of domestic producers on the export and import markets impairs external balance the impact of the wage increase on output and employment is evaluated through the reduction in domestic demand required to restore external balance at the empirical level we endeavour to evaluate separately the influence on exports and imports of domestic costs at unchanged capacity levels and of capacity levels themselves and we endeavour to evaluate the influence of real wages on capacity levels through scrapping and investment all evaluations rely on the foreign trade equations of econometric models of the belgian economy the conclusions from our empirical investigation are first that estimates of the trade off between real wages and employment in belgium are subject to considerable imprecision second that the short run elasticity of employment with respect to real wages keeping capacity constant is probably quite small like 0 2 and definitely less than unity in absolute value third that the corresponding medium run elasticity taking into account capacity adjustments is probably sizeable like 2 and definitely larger than unity in absolute value and fourth that exchange rate adjustments might not make too much difference in either the short run or the medium run turning to a discussion of policy we shall argue that these conclusions give support to a policy of constant real labour incomes of comprehensive efforts to redistribute work through shorter working hours or related schemes and of selective efforts to slow down capacity scrapping

the black market for dollars in brazil the model of the black market for dollars focuses on the interaction of portfolio decisions relevant to the holding of asset stocks and the determinants of net flows of dollars associated with tourism and smuggling a partial equilibrium model of the black market shows that the level of the premium is determined by the official real exchange rate and the official depreciation adjusted interest differential as well as seasonal factors associated with tourism expectations of future exchange rate changes under rational expectations are shown to affect the current level of the black market premium the empirical evidence provides ample support for the role of the key determinants of the premium as well as for an important seasonal pattern the magnitude of the seasonal variation is evidence of the imperfect substitutability between black dollars and cruzeiro assets in portfolios

cost structures in multinational and domestic banking abstract prior research on international banking has proposed many reasons for the multinationalization of u s banks but provided little empirical support for its propositions using a pooled time series data set from 1987 to 1990 this study analyzes the ray and expansion path scale economies and expansion path subadditivity of u s based multinational banks mnbs both at the firm and the plant levels it also measures and analyzes inefficiencies for these banks inefficiencies are measured relative to a thick frontier cost function a similar analysis is conducted for domestic banks dbs for comparison purposes no support is found for the prior belief that similar cost structures exist for mnbs and dbs in general we find that mnbs are able to fully exploit economies of scale and face lesser diseconomies from joint production and lower inefficiencies than dbs

born on the first of july an un natural experiment in birth timing abstract it is well understood that government policies can distort behavior but what is less often recognized is that the anticipated introduction of a policy can introduce its own distortions we study one such introduction effect using evidence from a unique policy change in australia in 2004 the australian government announced that children born on or after july 1 2004 would receive a 3000 baby bonus although the policy was only announced seven weeks before its introduction parents appear to have behaved strategically in order to receive the benefit with the number of births dipping sharply before the policy commenced on july 1 2004 more australian children were born than on any other single date in the past thirty years we estimate that over 1000 births were moved so as to ensure that their parents were eligible for the baby bonus with about one quarter being moved by more than one week most of the effect was due to changes in the timing of induction and cesarean section procedures we find evidence to suggest that babies who were shifted into the eligibility period were more likely to be of high birth weight two years later on july 1 2006 the baby bonus was increased and we find that this again caused births to be moved from june to july these birth timing events represent an opportunity for health researchers to study the impact of planned birthdays and hospital management issues

wage gaps factor shares and real wages the relationships which link real wages capital intensity and factor shares are tested as a prelude to tests of the relationship between wage rigidities and labour market institutions evidence from seven countries indicates that the evolution of factor shares is well explained by changes in capital intensity which is itself well explained by product wages and technical progress a key implication is that changes in full employment capital labour ratios have been the dominant reason for the longer run decline of profit shares in europe and japan relative to the united states it follows that changes in cyclically adjusted factor shares provide little or no information regarding the gap between the actual real wage and its full employment value

insulation properties of a two tier exchange market in a portfolio balance model when countries peg their currencies to those of their major trading partners they expose themselves to interest sensitive and speculative capital flows that can undermine their ability both to maintain their exchange rate and to pursue an independent monetary policy some countries notably france italy and the belgo luxembourg economic union bleu experimented with two tier exchange rates in the early 1970s in the hopes of insulating their economies from the effects of international capital flows while at the same time protecting foreign trade from exchange rate fluctuations france and italy soon abandoned the experiment but the bleu continues to maintain separate exchange markets with separate exchange rates for current and capital account transactions the commercial exchange rate which relates to the market for current account transactions is generally pegged by the authorities the financial exchange rate determined in the market for capital account transactions is usually free to fluctuate 1 this paper investigates how well a two tier exchange market insulates a small open economy from foreign disturbances taking into account recent developments in the theory of exchange rate determination work by branson 1977 dornbusch 1976 and kouri 1976 suggests that the short run equilibrium value of the exchange rate is determined along with interest rates by demand and supply in the markets for financial assets this asset market or portfolio balance approach to exchange rate determination is particularly well suited to a study of the two tier exchange market one can view the financial exchange rate as a relative asset price it is among the variables that equilibrate asset markets and it is determined in the short run in those asset markets previous theoretical work on the two tier exchange market has generally been within the mundellian framework the financial exchange rate has been treated as equating a flow demand and supply of foreign exchange the asset market approach has the advantage of carefully distinguishing between stocks and flows in particular it treats demands for assets as stock demands that are realized instantaneously so that actual holdings of assets always reflect the desired composition of the portfolio disturbances to portfolio equilibrium create immediate stock adjustments as portfolios are rebalanced causing instantaneous changes in endogenous market clearing variables in addition disturbances alter the rate of accumulation the flow of financial assets over time portfolio balance models of two tier exchange rates can be found in dornbusch 1976 and decaluwe and steinherr 1976 but they differ from the one presented here dornbusch partitioned the exchange market so that interest income a current account transaction was channelled through the financial market that segmentation yields a different expected rate of return on foreign

do estate and gift taxes affect the timing of private transfers abstract proposals to alter the estate tax are contentious and have been considered largely in an empirical vacuum this paper examines time series and cross sectional variation to identify the effects of estate and gift taxation on the timing of private transfers the analysis is based on data from the 1989 1992 1995 1998 and 2001 surveys of consumer finances legislative activity during this period reduced the tax disadvantage of bequests relative to gifts moreover the magnitude of this reduction differed systematically across identifiable household categories we find that households experiencing larger declines in the expected tax disadvantages of bequests reduced inter vivos transfers relative to households experiencing small declines in the tax disadvantages of bequests this finding is consistent with the hypothesis that the timing of transfers is responsive to applicable gift and estate tax rates the results also provide evidence of a systematic bequest motive for high wealth households

a note on the intracyclical balance sheet behavior of large commercial banks 1972 1978 using a parkin type model this paper tests for the responsiveness of large banks portfolio decisions to exogenous factors over the period 1972 to 1978 based upon aggregate weekly data adjusted for first order autocorrelation and a restricted least squares estimation procedure the empirical results indicate significant differences in behavior i e structural changes over the business cycle previous studies have implicitly assumed that such behavior is constant over the cycle or that differences over the cycle are not significant this research shows that the assumption is untenable and that the differences over the cycle are statistically significant since these patterns vary over the business cycle the differences should be incorporated into models of bank balance sheet behavior to avoid misleading interpretations and implications

capital controls and international trade finance abstract this paper studies the effects of prohibiting individuals from holding foreign assets but of allowing firms to trade in foreign assets only up to what is needed to finance export and import activities although firms can perform arbitrage between domestic and foreign financial markets the distortions in asset markets are not fully arbitraged away but instead are transmitted to domestic goods markets the dynamics and steady state responses to a variety of shocks are crucially affected by capital controls even in the presence of capital controls the volatility of domestic interest rates can be substantial

how do banks adjust to changing input prices a dynamic analysis of u s commercial banks before and after the crisis abstract the 2000 2013 period was characterized by substantial regulatory monetary and technological change especially after the onset of the global financial crisis this study assesses the total impact of these policy shifts and technological changes on u s commercial banks short run and long run substitution elasticities an endogenous break test divides the sample into a pre crisis period and a post crisis period during the former period banks inputs tend to be inelastic substitutes after the onset of the crisis particularly the long run substitutability of most input factors decreases to even lower levels due to changes in both cost technology and economic conditions at the same time banks response to input price changes becomes more sluggish hence especially after the onset of the crisis banks have little flexibility regarding input factor usage and are thus sensitive to input price changes from a cost perspective

the modern history of exchange rate arrangements a reinterpretation we develop a novel system of reclassifying historical exchange rate regimes one key difference between our study and previous classifications is that we employ monthly data on market determined parallel exchange rates going back to 1946 for 153 countries our approach differs from the imf official classification which we show to be only a little better than random it also differs radically from all previous attempts at historical reclassification our classification points to a rethinking of economic performance under alternative exchange rate regimes indeed the breakup of bretton woods had less impact on exchange rate regimes than is popularly believed

exporting financial institutions management via foreign direct investment mergers and acquisitions we test the relevance of the new trade theory and the traditional theory of comparative advantage for explaining the geographic patterns of international m as of financial institutions between 1985 and 2000 the data provide statistically significant support for both theories we also find evidence that the u s has idiosyncratic comparative advantages at both exporting and importing financial institutions management