competing macro hypotheses in the united states a kalman filtering approach the empirical validity of alternative views about the short run determinants of real output growth in the united states is investigated a nested framework is used to test the macro rational expectations mre hypothesis directly against two competing hypotheses the neo keynesian view that anticipated and unanticpated monetary policy both matter and friedman s 1977 proposition that increased inflation uncertainty reduces real output at least temporarily the unobservable explanatory variables are obtained from time varying parameter models of inflation and money growth which generate forecast errors and their conditional variances consistent with rational expectations under a continuously chaning policy regime the empirical results strongly support friedman s view the mre hypothesis must be rejected since both anticipated and unanticipated monetary changes matter the results prove robust across different model specifications and estimation techniques

identifying valuing and hedging of embedded options in non maturity deposits abstract non maturity deposits like savings accounts or demand deposits contain significant option risks caused by the bank s discretionary pricing and the customers withdrawal right option risks follow from inherent non linear factor exposures i propose an ordinal response model for deposit rate jumps to identify non linear factor exposures and a discrete time term structure model to value the resulting option risks and to derive hedge measures outside the model my delta profile resembles a constant maturity swap but vega and gamma are more pronounced which demonstrates that the widespread practice of static hedging with zero bonds is inadequate

bequest as a public good within marriage a note bequest to and marriage of children can lead to a pareto inefficient allocation the inefficiency or market failure arises because one family making a bequest to its own child ignores the contribution to the utility of the other family whose child enters the marriage this note shows that an assortative mating rule based on bequests can improve or even restore pareto efficiency when parents take account of the rule in deciding the amount of bequests to their own children

the secular inflation term in open economy phillips curves abstract robert flood has compared three alternative specifications for the secular inflation term in an open economy phillips curve attributed respectively to buiter miller and frankel and mussa we point out 1 an arithmetic error 2 the equivalence of the frankel and mussa versions and 3 some arguments against the buiter miller version

money and economic activity inventories and business cycles abstract incomplete information is a necessary condition for any real effects produced by monetary impulses an alternative to the local global inference problem is explored in this paper agents are confronted with permanent and transitory shocks even with full knowledge about the stochastic structure their best perception at any particular time will usually be erroneous prices for each period are set at the beginning of the period on the basis of market conditions the realization of the shock process thus creates a short run disequilibrium absorbed by inventory adjustments this adjustment translates perceived transitory monetary shocks into serially correlated output movements the analysis proceeds within the context of rational expectations it offers a generalization of equilibrium analysis in two respects prices are always in equilibrium relative to perceived conditions but they do not reflect all ongoing shocks quantity adjustments reflect the perceived transitory shocks the framework used involves moreover a stock flow interaction operated by inventory adjustments the stock flow interaction imposes at any time a future expected adjustment path for price level and quantities to the system s unique stock equilibrium a major implication of the analysis resolves a puzzle experienced in a recent paper by robert hall it reconciles intertemporal substitution with lagged effects of monetary impulses it also reconciles small and inconclusive cyclic movements in real wages with the occurrence of production function and large variations in unemployment lastly the nature of the inference problem determined by the pattern of incomplete information produces serially correlated movements conditioned on large permanent shocks

measuring rents and interest rate risk in imperfect financial markets the case of retail bank deposits traditional measures of interest rate risk assume that prices of financial assets and liabilities are set in perfectly competitive markets however evidence suggests that many retail financial markets do not follow the competitive paradigm in this paper we employ a general contingent claims framework to value rents earned by banks in demandable retail deposit markets our analysis provides a natural and economically meaningful measure of interest rate risk for these imperfectly competitive markets using monthly survey data on now accounts and mmdas we estimate the value of retail deposit rents and deposit durations for more than 200 commercial banks

asymmetric quantile analysis of the swedish mortgage price discovery process based on swedish banking data we discover robust and significantly positive asymmetric price transmission apt effects over all analysed regression quantiles of our mortgage interest rates with even larger positive apt for the higher percentiles the analysis was enabled through unique access to a swedish bank s seb own records of their true borrowing costs our central contribution is that there is a higher propensity for the bank to rapidly increase its mortgage interest rates for customers following an increase in its borrowing costs compared with the propensity for the bank to decrease its customers mortgage rates subsequent to a corresponding borrowing cost decrease

investment in human and nonhuman capital transfers among siblings and the role of government the implications for efficient allocation of parents inability to force transfers among siblings are explored when there are differences in abilities of children within families such transfers may be necessary to achieve a first best solution in the absence of such transfers a tax on earned income and a subsidy to inheritance are useful second best tools whereas subsidies to investments in human capital or physical capital are not desirable

is consumption too smooth long memory and the deaton paradox under common arima representations of income the permanent income hypothesis predicts that the volatility of consumption should be larger than the volatility of unanticipated shocks to income this prediction is not supported by the data the authors examine whether this apparent excess smoothness of consumption is the result of the arima representation s implicit restrictions on low frequency dynamics by using a generalized long memory stochastic representation the authors construct confidence intervals for the long run impulse response of income in the absence of such low frequency restrictions these intervals are quite wide and include regions in which excess smoothness vanishes copyright 1991 by mit press

market structure and the nature of price rigidity evidence from the market for consumer deposits panel data on consumer bank deposit interest rates reveal asymmetric impacts of market concentration on the dynamic adjustment of prices to shocks banks in concentrated markets are slower to raise interest rates on deposits in response to rising market interest rates but are faster to reduce them in response to declining market interest rates thus banks with market power skim off surplus on movements in both directions since deposit interest rates are inversely related to the price charged by banks for deposits the results suggest that downward price rigidity and upward price flexibility are a consequence of market concentration

inferring market information from the price and quantity of s l deposits abstract this paper infers market information embedded in the price and quantity of s l deposits while previous empirical research typically treats the risk premium as the key element of deposit interest spread subsidy shifting theory suggests that deposit rates also contain a subsidy shifting premium that arises from an institution s eagerness to fund loan and investment opportunities that extract deposit insurance subsidies this paper examines the existence and the nature of both premiums and shows how regulators can use this information to make regulatory oversight more effective

productivity health and inequality in the intrahousehold distribution of food in low income countries a model is formulated incorporating linkages among nutrition labor market productivity health heterogeneity and the intrahousehold distribution of food and work activities in a subsistence economy empirical results based on a sample of households from bangladesh indicate that despite considerable intrahousehold disparities in calorie consumption households are averse to inequality furthermore consistent with the model the results also indicate that both the higher level and greater variance in the calories consumed by men relative to women reflect in part the greater participation by men in activities in which productivity is sensitive to health status copyright 1990 by american economic association

household investment decisions and offspring gender parental accounting numerous behavioural factors have been identified as having an impact on household stockholding decisions given there is both theoretical and empirical evidence to support the premise that offspring gender can influence specific types of parental preferences i test the theory that offspring gender has an effect on parental investment decision making i find that offspring gender does influence household stock market participation specifically i find that having only female offspring can significantly increase the probability of stockholding given stockholding can have large effects on household wealth levels and that family wealth levels affect intergenerational transfers this finding could have important implications for understanding distributional welfare issues

estimating the intrahousehold incidence of illness child health and gender inequality in the allocation of time in this paper the authors develop and implement a method for estimating the effects of infant morbidity on the differential allocation of time of family members based on discrete indicators of health and activity participation commonly available in survey data and within the context of a household model in which health is determined endogenously their estimates that take into account the simultaneity of health activity associations indicate that increased levels of infant morbidity significantly exacerbate existing differentials in the accumulation of human capital across teenage boys and girls in indonesia copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

reliability of policy announcements and the effects of monetary policy abstract monetary authorities regularly announce targets for monetary growth but the market may not completely trust these announcements because they may not always be truthful hence the market does not have perfect knowledge about future monetary policy and must form its expectations on the basis of information it can extract from the announcements and its observations of the actual money supply this paper asks how the macroeconomic effect of monetary policy might be altered by more reliable policy announcements in the setting of a medium sized open economy it is found that contrary to the full information case a reduction in monetary growth of 1 may lead on impact to a reduction in inflation of much less than 1 if the announcements are not very credible the output costs of lowering inflation are smaller both in the short run and the long run the more reliable the announcements however the plausibility of announcements does not affect the output loss for a given appreciation of the currency fluctuations in the exchange rate that are attributable to monetary disturbances beyond the policy makers control can nonetheless be dampened by making announcements that are more highly correlated with the truth

long memory and persistence in aggregate output abstract we examine persistence in u s aggregate output by estimating fractionally integrated arima models these models provide better low frequency approximations to the wold representation than previous stochastic specifications and earlier results on the importance of a permanent component emerge as special cases we find evidence of long memory which induces persistence though this long memory need not be associated with a unit root our point estimates indicate that macroeconomic shocks while persistent are distinctly less persistent than many earlier studies suggest however confidence intervals associated with the long run response are quite wide

random earnings differences lifetime liquidity constraints and altruistic intergenerational transfers abstract this paper develops a model of private savings behavior in which households care about their descendants cannot have negative net worth and have lifetime earnings depending on random draws from an exogenous distribution of abilities the elements interact very lucky parents are likely to leave large estates constrained children are unusually likely to receive intergenerational transfers the paper proves the existence of a stationary cross sectional distribution of wealth endogenously determines where liquidity constraints will bind and shows that the long term interest rate must be such that ricardian neutrality fails its last section generates several illustrative numerical simulations

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

estimates of the economic returns to schooling from a new sample of twins this paper uses a new survey to contrast the wages of genetically identical twins with different schooling levels multiple measurements of schooling levels were also collected to assess the effect of reporting error on the estimated economic returns to schooling the data indicate that omitted ability variables do not bias the estimated return to schooling upward but that measurement error does bias it downward adjustment for measurement error indicates that an additional year of schooling increases wages by 12 to 16 percent a higher estimate of the economic returns to schooling than has been previously found copyright 1994 by american economic association

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

the effects of child mortality changes on fertility choice and parental welfare empirical studies have overwhelmingly shown that a lower child mortality rate leads to lower fertility yet it has not been possible to satisfactorily analyze this relationship in even the simplest theoretical models this paper attempts to bridge this gap between theory and the empirical literature the paper also presents results on the effects of child mortality changes on parental welfare the analysis captures the dynamic stochastic feature of fertility choice subsumes other endogeneous choices e g the quality of the children and treats the number of children as a discrete variable this added realism is important for the analysis

whence exchange rate overshooting money stock or flow abstract money stock innovations have two principal impact effects on the exchange rate one is the direct effect as captured by the overshooting hypothesis the second is the result of the change in money growth rate expectations induced by the stock innovation simulations using a stylized monetary process verify that the front end loading of the growth rate effect is potentially much more important that the direct effect additional simulations using a calibrated monetary process demonstrate that growth rate effects are on average about twice the magnitude of stock innovation effects

the efficiency of the scandinavian banking sector a wavelet quantile regression analysis in this article the scandinavian housing financing market is analysed in order to determine whether the interest rate price discovery processes of denmark norway and sweden are efficient based o

fairly priced deposit insurance and bank charter policy the thrust of current deposit insurance reform risk based insurance premiums and capital requirements is an effort to price deposit insurance more fairly fairly pricing deposit insurance eliminates inequitable wealth transfers but it does not lead to an efficient equilibrium this paper shows that an alternative charter policy results in an efflcient separating equilibrium this article analyzes the effect of alternative charter policies when deposit insurance is fairly priced the thrust of current deposit insurance reformrisk based capital requirements 1988 and risk based insurance premiums 1994 is an effort to price deposit insurance more fairly chan greenbaum and thakor s 1992 seminal paper dramatically illustrated that fairly pricing deposit insurance is not enough to solve the deposit insurance problem in their model when banks hold nontraded private information assets no equilibrium exists with fairly priced deposit insurance unless banks earn rent or are subsidized fairly pricing deposit insurance eliminates inequitable transfers of wealth but it does not lead to an efficient equilibrium this paper shows that an alternative charter policy gives an efficient separating equilibrium the separating equilibrium segregates the market for insured transactions deposits from private information financial intermediation the analysis in this article provides support for the deposit insurance reform proposal in the recent 1993 national commission on financial institution reform recovery and enforcement ncfirre report to the president and congress and for merton and bodie s 1993 proposal both proposals impose a separating equilibrium that isolates insured transactions accounts and the public information traded assets that secure them from private information assets in the bank s portfolio the formal model developed here is designed to demonstrate the effect of charter policy on the efficiency of market equilibrium in an uncomplicated setting but the main result that a separating equilibrium is more efficient is extremely robust with respect to the model specification the model has two types of financial intermediaries intermediaries that hold nontraded private

the family inheritance and the intergenerational transmission of inequality unequal inheritance of material wealth is commonly considered a major cause of inequality in consumption however theoretical models of the intergenerational transmission of inequality by becker blinder and ishikawa imply that unequal inheritance may either increase or reduce consumption inequality differences in inherited wealth resulting from unequal parental incomes increase inequality in recipients consumption however unequal bequests caused by differences among families in the endowed ability of children or the costs of producing human capital are equalizing empirical results confirm these predictions the inheritance received by children is inversely related to both children s income and parental education thus bequests are compensatory in that ceteris paribus low income children inherit more than their advantaged contemporaries

a stochastic dynamic analysis of parental sex preferences and fertility the author has developed a stochastic dynamic model of fertility to examine assumptions which form the basis of often used econometric tests for parental sex preferences these assumptions included the use of fertility data to test for sex preferences and to test for son preference based on the effect of the number of males on fertility the heckman and willis stochastic model of reproduction was used to formulate this model this new model allowed some tractable and testable predictions it was able to predict income and wage effects without sex preferences further it can accurately describe life cycle dynamic fertility behavior the model demonstrated the existence of a quantity quality interaction which influence parents decisions on fertility for example higher quality measured by the effective number of children substituted for a higher quantity number of children the model proved that sex preferences can indeed be tested but it could not differentiate empirically between son preference and daughter preference from fertility data perhaps data on intrafamily allocation of resources as used by rosenzweig and schultz behrman pollak and taubman and behrman would better be able to test for son versus daughter preference since allocation is based on existing children the results of this newly formulated stochastic dynamic model of fertility challenge the validity of traditional econometric tests for son preference

retail bank deposit pricing an intertemporal asset pricing approach fundamentally spreads between market and deposit interest rates increase when interest rates rise and decline when rates fall recent empirical studies have found this phenomenon to be related to market concentration static equilibrium models are poorly equipped to explain this behavior in this paper the author applies an intertemporal asset pricing model incorporating bank deposits as a form of money in order to analyze the pricing behavior of a banking sector exercising market power his results extend the theoretical literature on deposit pricing and provide some insights into the behavior of interest rate spreads through time copyright 1995 by ohio state university press

modelling british interest rate adjustment an error correction approach an error correction model is used to capture the dynamics of british retail deposit and loan rate responses to changes in the central bank s base rate the test is conducted using a monthly series of interest rates for four generic retail banking products over the period 1986 93 the adjustment process is found to vary considerably between and within banks and products the results suggest that this market continues to exhibit many features of imperfect competition and that adjustment differences could affect the speed of the money transmission mechanism

a model of exchange rate dynamics this model treats the exchange rate as an asset price that depends on expectations concerning exogenous real and monetary factors that will affect relative prices and absolute price levels in future periods changes in exchange rates reflect both expected changes in these exogenous factors and changes in expectations occasioned by new information the model explains the random component in exchange rate behavior the source of divergences from purchasing power parity the anticipatory response of exchange rates to future expected disturbances and the causes of exchange rate overshooting

post deregulation bank deposit rate pricing the multivariate dynamics the relationship between wholesale and retail interest rates since deregulation is of substantial interest to economists and policymakers because the predictability of the monetary aggregates and their relationship to bank reserves depend on adjustment patterns in the wholesale and retail money markets we provide evidence on the nature of wholesale retail interest rate relationships by examining the dynamic interactions among two wholesale interest rates federal funds and six month treasury bills and three retail deposit rates six month consumer certificates of deposit money market deposit accounts and super now s we perform a multivariate time series analysis with particular attention paid to causal patterns and the shapes of impulse response functions a number of stylized facts related to size of adjustment speed of adjustment and pattern of adjustment are established for the response of retail rates to unanticipated shocks in wholesale rates

bank funding costs in a rising interest rate environment one key risk to the banking system is how funding costs will change as monetary policy is normalized and interest rates rise after almost a decade of near zero rates our contribution is to develop a model that jointly estimates banks balance sheets and retail interest rates to arrive at a consistent estimate of the change in bank funding costs as market rates change our estimates imply a 100 basis point shock to the federal funds rate would increase overall deposit funding costs by about 40 billion which is roughly equal to 25 of aggregate annual net income for commercial banks and savings institutions we also find that deposit rate responses are largely symmetric in contrast to some previous research showing deposit rates are less responsive to upward movements in reference rates we introduce unique and confidential data on bank deposit betas to anchor our results

the intrahousehold demand for nutrients in rural south india individual estimates fixed effects and permanent income good estimates of nutrient intake responses to prices and income are very useful for the evaluation of the numerous efforts to improve nutrition in many developing countries through pricesubsidy and income generation policies we discuss three problems in standard estimates of these responses and then illustrate their implications for nutrient demand relations for a poor sample from rural south india 1 intra household nutrient allocations usually are ignored in this case nutrient intakes for females systematically have algebraically lower price elasticities than do those for males which may leave the females particularly vulnerable at times of food shortages 2 unobserved fixed effects may bias the estimates of responses to observed variables in this case not only the community fixed effects on which the previous literature has focused but also household and individual fixed effects are important failure to control for them results in substantial algebraically upward biases in many estimated price responses 3 most previous studies use current instead of permanent income which a priori may account for the low estimated income elasticities in this case however the use of permanent income does not change the conclusion that the nutrient intakes responses to income are quite small

gender bias investments in children and bequests the impacts of pure sex preference and differential earnings opportunities by gender on investments in children are modelled with altruism if bequest constraints do not bind human investments are privately efficient with the higher earning gender receiving more education education does not depend on parental wealth the gender differential in bequests is ambiguous however even in this case when bequest constraints bind education may depend on wealth and it is also possible for the gender with better earnings opportunities to get less education the model is tested with data from philippine villages where bequest constraints are generally nonbinding the schooling differential slightly favors daughters estimated bequest behavior however reflects pure sex preference in terms of our model copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

interest rate pass through and asymmetric adjustment evidence from the federal funds rate operating target period this study examines the long run interest rate pass through of the federal funds rate to the prime rate and whether there is asymmetric adjustment in the prime rate using the enders siklos 2001 momentum threshold autoregressive model over the period february 1987 to october 2005 once allowance is made for the endogenously determined structural break in the cointegrating relationship in april 1996 the adjustment of the prime rate to changes in the federal funds rate appears asymmetric with upward rigidity a result contrary to previous studies which found that the prime rate exhibits downward rigidity the finding of upward rigidity in the prime rate lends support for the customer reaction and adverse selection hypotheses moreover the empirical evidence seems to support the observation of increased pass through as a result of heightened competition in the banking industry as well as the federal reserve s enhanced transparency in monetary policy during the 1990s

real exchange rate overshooting and the output cost of bringing down inflation implementing a gradualist policy of monetary contraction in an open economy with a freely floating exchange rate but with nominal inertia in domestic labor costs can lead to prompt and substantial changes in the nominal and real exchange rate one of the virtues claimed for such exchange rate overshooting however is its immediate effect on the price level and so on domestic wage and price inflation in this paper we show that in a model which is super neutral and has nominal inertia in both the level of labor costs and their trend or core rate of growth this early overshooting of the exchange rate does not succeed in cutting the output costs of reducing steady state inflation those output and unemployment costs which are initially avoided by over valuing the currency have to be paid later when this overvaluation is corrected relative to other policies which achieve the same effect on steady state inflation exchange rate overshooting brings inflation down more quickly this abstract was borrowed from another version of this item

bank deposit rate clustering theory and empirical evidence the market prices of stocks and other assets tend to cluster on round fractions a similar clustering is found in the interest rates paid on retail bank deposits however the theoretical rationales given for asset price clustering are incompatible with the clustering of retail deposit rates this paper proposes a theory based on depositors limited recall it shows that when banks exploit this phenomenon deposit rates will tend to be set at round fractions and will be relatively sticky at these levels the implications of this theoretical model are tested using money market deposit account and retail certificate of deposit interest rate data from a sample of more than 500 banks