welfare properties of strategic r d investments in hotelling models abstract in linear city models if firms are allowed not allowed to locate outside the linear city they engage in excessive insufficient r d investments from the normative viewpoint this implies that the feasible set of locations drastically affects their investments

banking panics information and rational expectations equilibrium this paper shows that bank runs can be modeled as an equilibrium phenomenon we demonstrate that some aspects of the intuitive story that bank runs start with fears of insolvency of banks can be rigorously modeled if individuals observe long lines at the bank they correctly infer that there is a possibility that the bank is about to fail and precipitate a bank run however bank runs occur even when no one has any adverse information extra market constraints such as suspension of convertibility can prevent bank runs and result in superior allocations banking panics were a recurrent phenomenon in the united states until the 1930s they have re emerged as a source of public concern and much theoretical research recently in this paper we provide an information theoretic rationale for bank runs the traditional story is that contagion is an important aspect of bank runs the idea seems to be that when the general public observes large withdrawals from the banking system fears of insolvency grow resulting in even larger withdrawals of deposits in our model some individuals withdraw because they get information that future returns are likely to be low uninformed individuals observing this also have an incentive to liquidate their investments in addition some individuals need to withdraw deposits for other than informationally based reasons thus if the random realization of such a group of individuals is unusually large then the uninformed individuals will be misled and will precipitate a run on the bank the technology is such that a large volume of withdrawals involves liquidation costs consequently runs on the bank do impose social costs a mechanism that may reduce these costs in our model is to suspend convertibility if withdrawals are high however those individuals who need to withdraw their assets for liquidity reasons are worse off ex post our model provides a rationalization for restrictions in demand deposits that were widespread prior to 1929 friedman and schwartz 7 suggest that restrictions of payments ensured

taking stock monetary policy transmission to equity markets this paper analyses the effects of u s monetary policy on stock markets we present evidence that individual stocks react in a highly heterogeneous fashion to u s monetary policy shocks and relate this heterogeneity to financial constraints and tobin s q first we show that there are strong industry specific effects of u s monetary policy second we also find that for the 500 individual stocks comprising the s p500 the firms with low cash flows small size poor credit ratings low debt to capital ratios high price earnings ratios or a high tobin s q are affected significantly more by monetary policy

β convergence and the cyclical dynamics of uk regional house prices the potential convergence of regional house prices in the uk is examined in contrast to the existing literature which focuses upon stochastic convergence the present paper considers alternative f

the capital structure and investment decisions of the small owner managed firm some exploratory issues in the burgeoning literature on small firm financing the problem of underidentification in respect to the supply of and demand for capital has not been fully resolved in an attempt to progress this issue the current paper looks at some of the issues influencing the demand for finance in small firms which are owner managed the paper is primarily exploratory in nature and argues that a greater emphasis might usefully be placed on the cost of capital dimension in future research into small business financing in particular it is suggested that where the objective of an owner manager is to maintain control of the firm interdependent investment and financing strategies may be chosen to control the small firms cost of capital this in turn indicates that the tendency for some small firms to invest sub optimally and exhibit slower than average growth may not be primarily determined by limitations on their supplies of finance on the demand side it may well be that in addition to equity aversion a suboptimal capital structure decision is made in the form of a reduced demand for debt in other words given the level of equity that an owner manager chooses debt may not be fully expanded to the capacity limit consistent with value maximisation

private information deposit interest rates and the stability of the banking system abstract the regulation of deposit interest rates has received little support from economists the same is true for the original rationale for such regulation that bank competition for deposits generates inherent instability in the banking system this paper develops an adverse selection model of banking in which this rationale is correct moreover in this model instability in the banking system can arise despite the presence of a lender of last resort and despite the absence of any need for deposit insurance however in the world described the regulation of deposit interest rates is shown to be an appropriate response to instability in the banking system finally it is argued that adverse selection models of deposit interest rate determination can confront a number of observed phenomena that are not readily explained in other contexts

the regional financial sector a scottish case study dow s c 1992 the regional financial sector a scottish case study reg studies 26 619 631 the regional finance literature suggests that financial market segmentation may affect regional economic activity but that the uk financial sector is sufficiently integrated to rule out this effect this paper attempts to broaden the scope of the debate by considering the credit creating behaviour of the banking sector together with the interdependent financial behaviour of all other sectors in a region it is concluded that financial behaviour in this broad sense affects regional activity even in an integrated national financial market in particular financial integration may adversely affect the allocation of new credit to a peripheral region the argument is assessed by considering the scottish case dow s c 1992 le secteur financier regional cas d etude de l ecosse reg studies 26 619 631 la documentation relative au secteur financier regional laisse supposer que la segmentation du marche finan

modelling business cycle nonlinearity in conditional mean and conditional variance some international and sectoral evidence this paper tests for the presence of output mean and variance nonlinearities in international industrial production and uk and us sectoral production growth rates using armagqarch bilinear bl and joint bl gqarch models arma gqarch models confirm the presence of asymmetric variance effects in italian uk and us industrial production and in all sectors other than us nondurables and such that the conditional variance of output is increased following negative shocks bl models are identified for german italian and us industrial production and us manufacturing while bl gqarch models of joint nonlinearity in both conditional mean and conditional variance are also found to hold for us industrial production and manufacturing moreover with the exception of italy all bl and bl qarch models provide superior out of sample mean forecasts relative to forecasts from both naive models and models of the arma gqarch class

a theory of discouraged borrowers this paper examines the implications for the sme financing market of application costs that vary between firms and of imperfect screening of applicants by banks under these conditions discouraged borrowers can exist these are good borrowers who do not apply for a bank loan because they feel they will be rejected the paper shows that under a range of assumptions the scale of discouragement in an economy depends upon the screening error of the banks the scale of application costs and the extent to which the bank interest rate differs from that charged by the moneylender discouragement is shown to be at a maximum where there is some but not perfect information

the new pattern of regional unemployment causes and policy significance in common with most oecd countries unemployment in britain has differed significantly between regions but the persistence of relative regional unemployment rates in britain has been until recently particularly striking however during the i990 93 recession the relative regional unemployment pattern changed significantly for the first time in seventy years our primary purpose here is to understand these recent changes and to examine what might be learned about the contribution of economic policies to the amelioration of both regional unemployment rate differentials and the amplitude of regional unemployment cycles finally we ask whether there are any policy lessons to be drawn from the recent cycles in regional unemployment patterns which might provide insight into the amplitude of macro economic cycles

the microstructure of the euro money market abstract this paper provides an empirical examination of the microstructure of the euro money market especially the overnight market the interbank market for short term funds in the transnational currency created in january 1999 the institutional framework shaping the microstructure of the money market can be delimited as the union of 1 central banks interest setting bodies and their long term policy strategy 2 instruments for monetary policy operations and liquidity management 3 the private market financial instruments and trading mechanisms for funds and 4 the payment and settlement infrastructure for the transfer of those funds all four elements can significantly influence the intraday behaviour of money market rates to study their effects on the euro money market 5 months of intraday data for overnight deposits have been recorded from brokers in four euro area countries and the uk posting their quotes on reuters and from the italian electronic market mid the results show two hump shaped or u shaped intraday patterns of quoting frequency and volatility but flatter intraday patterns sometimes weakly single hump shaped for bid ask spreads even intraday overnight rate levels hardly differ across brokers located in different euro area countries reflecting the high integration of this market already shortly after the introduction of the euro despite some remaining heterogeneities in market structures and trading channels quoting activity rate volatility and spreads increase on ecb governing council days particularly after the 1 45 pm release time of interest rate decisions however since the amplitude of this volatility is economically small and since turnovers are not indicative of adverse selection the average degree of policy uncertainty seems to have been rather limited during our sample period ecb announcements of new m3 data related to the first pillar of its monetary policy strategy around 10am seem to be associated with very moderate increases in short term volatility tuesdays eurosystem main refinancing auctions with the open market exhibit active pre and post auction liquidity re allocation but only a very short and moderate increase in volatility after the announcement of the allotments and no signs of market power or adverse selection open market operation settlement days exhibit the highest turnovers during the business week at least for the mid without however being affected by any special risks finally it is shown that spreads and volatility tend to be very high at the end of the minimum reserve maintenance period and that the same happened during the year 2000 changeover days reflecting the high risks involved in both

asymmetric changes in australia s small business loan rate this paper examines the dynamic asymmetric relationship between changes in the reserve bank of australia s rba cash rate and the interest rate for small business loans using monthly data 1990 2011 the results provide support for the rockets and feathers hypothesis with respect to both the amount and adjustment asymmetries while the rba s rate rises exert a one to one and instantaneous impact on the loan rate its rate cuts are only slowly and partially passed onto small businesses with a delay of 1 2 months the results also suggest that the recent global financial crisis increased the cost of borrowing for small businesses in australia by 2 21 these findings indicate that small businesses have limited time to respond to interest rate rises and not provided with the full benefit of interest rate decreases addressing this problem should ease the interest rate burden for small businesses and enhance their contribution to the economy

common trends and common cycles the existence of a serial correlation common feature among the first differences of a set of i 1 variables implies the existence of a common cycle in the beveridge nelson stock watson decomposition of those variables a test for the existence of common cycles among cointegrated variables is developed the test is used to examine the validity of the common trend common cycle structure implied by flavin s excess sensitivity hypothesis and campbell and mankiw s mixture of rational expectations and rule of thumb hypothesis for consumption and income linear independence between the cointegration and the cofeature vectors is exploited to decompose consumption and income into their trend and cycle components copyright 1993 by john wiley sons ltd

rockets and feathers the asymmetric speed of adjustment of uk retail gasoline prices to cost changes abstract the paper develops a quadratic quantity adjustment model to test the hypothesis put forward in the recent monopolies and mergers commission report that the speed of adjustment of uk retail gasoline prices to cost changes is more rapid when costs rise than when they fall and that the adjustment path is more concentrated around the mean value on the upswing using data from 1982 to 1989 evidence of faster and more concentrated responses to cost increases were found

do changes in the fundamentals have symmetric or asymmetric effects on house prices evidence from 52 states of the united states of america abstracttime series studies that have tried to establish the long run relationship between house prices and economic fundamentals have been criticized due to low power of their cointegration tests on the other hand those who have used panel data and panel tests to increase the power have found mixed results both groups have assumed that changes in the fundamentals have symmetric effects on house prices in this article we use nonlinear ardl approach to cointegration and error correction modelling and quarterly data from each of the states in the us to show that changes in the fundamentals have asymmetric effects on house prices in the short run as well as in the long run cointegration between house prices and fundamentals is established in 30 states and in district of columbia

congestion reducing investments and economic welfare in a hotelling model abstract we investigate optimal quality provision where quality is determined by congestion duopolists make congestion reducing investments and then compete in prices we find that an unregulated market leads to insufficient investment and that price cap below the equilibrium price eliminates this inefficiency

explaining loan rate differentials between small and large companies evidence from switzerland the lending rate differentials between loans to small and large companies are striking according to several studies these disparities of loan rates are primarily a result of a lower informational efficiency at small companies this study examines to what extent such differences in loan rates are caused not only by informational inefficiencies but also by operational costs and the borrower s negotiation power by using unique hand collected data from the credit pricing models of 15 swiss regional banks we provide new empirical evidence that operational costs are a key factor in explaining differences in lending rates between small and large enterprises furthermore we also found that the lack of negotiation power of small enterprises expressed in the profit margin amount of the bank has significant explanatory power

the regional transmission of uk monetary policy dow s c and montagnoli a 2007 the regional transmission of uk monetary policy regional studies 41 797 808 concerns have been raised in the media about a one size fits all monetary policy for the uk if there are diverse economic conditions in different regions then a unitary monetary policy cannot suit all the purpose of this paper is to explore this issue further by breaking it down into two separate issues first there is the more conventional way of considering the question in terms of the effect of a particular interest rate change on regions experiencing different economic conditions this requires a consideration of the nature and causes of regional economic disparities in the uk and how these might be affected by particular interest rate changes but there is further the question of how monetary policy is transmitted to the different regions the possibility is considered that there may be regional differences in how a particular monetary policy is translated into different financial

do firms get the financing they want measuring credit rationing experienced by small businesses in the u s this paper measures the extent to which small businesses in the united states in the late 1980s were able to access the external credit finance they desired we argue that a comprehensive definition of credit rationing must account for both a creditworthy firms that apply for and are denied financing and b creditworthy firms that decide not to apply for desired external financing given expectations about how long it may take to obtain financing and the evolution of investment opportunities

uncertain liquidity and interbank contracting we study a version of the diamond and dybvig journal of political economy 1983 91 401 419 model where banks would like to obtain insurance against shocks on returns on liquid assets through an interbank borrowing and lending program we show that if investments in liquid assets and their realized returns are private information to individual banks the first best allocation is not incentive compatible we then characterize the second best interbank contract

longitudinal analysis of relationships between planning and performance in small firms this paper investigates causal relationships between planning and performance utilizing a longitudinal database with responses from the same 2 956 businesses over a four year period results confirm the association between planning activity and performance that is evident in most extant literature they also however cast doubt on the traditional perception of the causal sequence of that association although subject to a number of limitations the results indicate that planning is more likely to be introduced into a small firm after a period of growth rather than before a period of growth these results make an important contribution to understanding the planning performance relationship for two main reasons they overcome the static data and relatively smaller sample size restrictions of many past studies and they provide evidence concerning the sequence of the relationship between planning and performance

distinguishing panics and information based bank runs welfare and policy implications in this paper we contrast panics and information based bank runs in an effort to provide a robust and empirically plausible model of how bank runs are triggered the model of information based runs is characterized by two sided asymmetric information the bank cannot observe the true liquidity needs of the depositors while depositors are asymmetrically informed about bank asset quality we also examine the relative degrees of risk sharing provided by bank deposit contracts and traded equity contracts we show that the choice of deposit or equity depends on the attributes of and information about the underlying investment returns

asymmetric equilibria in spatial competition abstract the main purpose of this paper is to study the impact of consumer concentration around the market center on the equilibrium locations of location price games in the case of symmetric triangular density it is shown that no symmetric equilibrium exists however we demonstrate the existence of asymmetric equilibria in pure strategies these equilibria are also characterized our secondary purpose is to study the sequential entry of two firms when the location space is not restricted to the market space this leads us to uncover a substantial first mover advantage which has been neglected in the literature

inflation forecast targeting implementing and monitoring inflation targets abstract inflation targeting is shown to imply inflation forecast targeting the central bank s inflation forecast becomes an explicit intermediate target inflation forecast targeting simplifies both implementation and monitoring of monetary policy the weight on output stabilization determines how quickly the inflation forecast is adjusted towards the inflation target money growth or exchange rate targeting is generally inferior than inflation targeting and leads to higher inflation variability commitment to target rules may be better than commitment to instrument rules

bank behavior based on internal credit ratings of borrowers abstract this study examines the relation of bank loan terms to borrower risk defined by the banks internal credit rating the analysis is not restricted to a static view it also incorporates rating transition and its implications on the relation money illusion and phenomena linked with relationship banking are discovered as important factors the results show that riskier borrowers pay higher loan rate premiums and rely more on bank finance housebanks obtain more collateral and provide more finance caused by money illusion in times of high market interest rates loan rate premiums are relatively small whereas in times of low market interest rates they are relatively high there was no evidence for an appropriate adjustment of loan terms to rating changes

duopoly locations and optimal zoning in a small open city abstract this paper analyzes a duopoly location model with an asymmetric zoning that prohibits firms from locating to a specific interval in a small open linear city it is shown that the maximum differentiation principle presented in d aspremont et al econometrica 47 1979 1145 is still valid under area zoning regulation moreover a zoning regulation can be seen as a policy instrument to limit firms excess profits and a proper regulation may even reduce the distortion in total transportation costs therefore enhancing social welfare specifically the optimal zoning is about 29 5 percent of the city with no amenity effect finally all the land rents raised by zoning are eventually confiscated by the absentee landowner

the price of liquidity the effects of market conditions and bank characteristics we study the prices that individual banks pay for liquidity captured by borrowing rates in repos with the central bank and benchmarked by the overnight index swap as a function of market conditions and bank characteristics these prices depend in particular on the distribution of liquidity across banks which is calculated over time using individual bank level data on reserve requirements and actual holdings banks pay more for liquidity when positions are more imbalanced across banks consistent with the existence of short squeezing we also show that small banks pay more for liquidity and are more vulnerable to squeezes healthier banks pay less but contrary to what one might expect banks in formal liquidity networks do not state guarantees reduce the price of liquidity but do not protect against squeezes

the federal funds market excess reserves and unconventional monetary policy abstract following the bankruptcy of lehman brothers interbank borrowing and lending dropped whereas reserve holdings of depository institutions skyrocketed as the fed injected liquidity into the u s banking sector this paper introduces bank liquidity risk and limited market participation into a real business cycle model with ex ante identical financial intermediaries and shows in an analytically tractable way how interbank trade and excess reserves emerge in general equilibrium investigating the role of the federal funds market and unconventional monetary policy for the propagation of aggregate real and financial shocks i find that federal funds market participation is irrelevant in response to standard supply and demand shocks whereas it matters for uncertainty shocks i e mean preserving spreads in the cross section of liquidity risk liquidity injections by the central bank can absorb the effects of financial shocks on the real economy although excess reserves might increase and federal funds might be crowded out as a side effect

bank suspension of convertibility abstract a banking panic occurs when depositors at all banks seek a large reduction in their deposit holdings suspension of convertibility of demand deposits into currency was the banking system s response to a banking panic when depositors are incompletely informed about the state of bank investments a panic can occur when depositors expect capital losses conditional on having observed noisy indicators of the state of bank investments banks with superior information about the investments can signal to depositors by suspending convertibility that continuation of the long term investments is mutually beneficial

small and medium size enterprises access to finance as a growth constraint abstract this paper presents recent research on access to finance by small and medium size enterprises smes smes form a large part of private sector in many developed and developing countries while cross country research sheds doubt on a causal link between smes and economic development there is substantial evidence that small firms face larger growth constraints and have less access to formal sources of external finance potentially explaining the lack of smes contribution to growth financial and institutional development helps alleviate smes growth constraints and increase their access to external finance and thus levels the playing field between firms of different sizes specific financing tools such as leasing and factoring can be useful in facilitating greater access to finance even in the absence of well developed institutions as can systems of credit information sharing and a more competitive banking structure

the effect of changes in the federal funds rate target on market interest rates in the 1970s abstract this paper examines the influence of monetary policy on interest rates by estimating the effect of changes in the federal funds rate target the federal reserve s policy instrument on market interest rates in the 1970s we find that changes in the target caused large movements in short term rates and smaller but significant movements in intermediate and long term rates we hypothesize that the similarity of the reactions of three six and twelve month rates to changes in the target offers a possible explanation for the lack of support for the expectations theory from studies that have tested the theory using these rates

asymmetric responses of house prices to changes in the mortgage interest rate evidence from the australian capital cities we examine the dynamic and asymmetric responses of house prices to changes in mortgage interest rates in australia from january 1995 to november 2017 we propose a threshold intervention model to d

interest rates and convergence across italian regions dow s montagnoli a and napolitano o interest rates and convergence across italian regions regional studies the purpose of this paper is to investigate the evidence for economic convergence across italian regions using trends in interest rate spreads and premia as indicators of regional credit conditions the results indicate the presence of persistent interest rate differentials and thus an absence of convergence across the twenty political regions but a high degree of convergence is observed within the four macroeconomic areas dow s montagnoli a and napolitano o 20 dow s montagnoli a et napolitano o les taux d interet et la convergence a travers les regions italiennes regional studies a partir des tendances des marges d interet sur les credits et des primes sur les taux d interet comme indicateurs des conditions de credit regionales cet article cherch

capital markets financial intermediaries and liquidity supply abstract we study a dynamic economy endowed with a sequence of overlapping generations of consumers and production processes and where productive assets are illiquid and consumption preferences are subject to uninsurable demand for liquidity we characterize the steady states that can be achieved with alternative financial systems we show that infinitely lived financial intermediaries offering a liability with age dependent restrictions may implement a social optimum with full insurance if instead they offer anonymous unrestricted contracts then only second best consumption allocations with partial insurance obtain we also examine the consumption allocations available when agents can trade shares in competitive stock markets while allowing for trade across generations may or may not improve upon generational autarky we show that this competitive equilibrium is not a social optimum and is dominated by a system of infinitely lived unrestricted intermediaries

what broad banks do and markets don t cross subsidization abstract we show that interbank markets are a poor substitute for broad banks that operate across regions or sectors in the presence of regional or sectoral asset and liquidity shocks interbank markets can distribute liquidity efficiently but fail to respond efficiently to asset shocks broad banks can condition on the joint distribution of both shocks and hence achieve an efficient internal allocation of capital this allocation involves the cross subsidization of loans across regions or sectors compared to regional banks that are linked through well functioning interbank markets broad banks lead to higher levels of aggregate investment higher output and less fluctuations within regions however broad banks generate endogenously aggregate uncertainty

a threshold cointegration analysis of asymmetric price transmission from crude oil to gasoline prices abstract this study provides new supportive evidence for asymmetric adjustment in u s retail gasoline prices the asymmetric transmission is found to occur not just through the spot markets of crude oil and refinery gasoline but also through their future markets further evidence also shows that the observed asymmetry in price transmission primarily occurs downstream not upstream of the transmission process

the impact of income economic openness and interest rates on housing prices in china evidence from dynamic panel quantile regression the rapid growth of housing prices has attracted the attention of the whole of society in china this article adopts the dynamic panel quantile regression to investigate the impact of income econo

monetary policy transparency and pass through of retail interest rates abstract this paper examines the degree of pass through and adjustment speed of retail interest rates in response to changes in benchmark market rates in new zealand during the period 1994 2004 we consider the effects of policy transparency and financial structure of the monetary transmission mechanism new zealand is the first oecd country to adopt a full fledged inflation targeting regime with specific accountability and transparency provisions policy transparency was further enhanced by a shift from quantity settlement cash to price interest rate operating targets in 1999 using phillips loretan estimates of cointegrating regressions we find complete long term pass through for some but not all retail rates our results also show that the introduction of the official cash rate ocr increased the pass through of floating and deposit rates but not fixed mortgage rates in line with previous studies we find the immediate pass through of market interest rates to bank retail rates to be incomplete although we find no statistical evidence for asymmetric response of retail rates to changes in market rates other than for business lending rates in the pre ocr period differences in the magnitude of mean adjustment lags indicate that banks appear to pass on decreases to fixed mortgage rates faster overall our results confirm that monetary policy rate has more influence on short term interest rates and that increased transparency has lowered instrument volatility and enhanced the efficacy of policy

regional interest rate pass through in italy this paper estimates the pass through and speed of adjustment of italian regional interest rates to changes in the money market rate for the period 1998q1 2009q4 our main findings suggest that the markup for the lending rates that banks charge are generally higher in the south than in the north moreover our results indicate that the pass through tends to be longer in southern regions we find little evidence supporting the hypothesis of asymmetric adjustment in the lending rates but detect some evidence supporting upward rigidity in the regional deposit rates

stock market cycles financial liberalization and volatility in this paper we analyze the cycles of the stock markets in four latin american and two asian countries and we compare their characteristics we divide our sample in two subperiods in order to account for differences induced by the financial liberalization processes of the early 1990s we find that cycles in emerging countries tend to have shorter duration and larger amplitude and volatility than in developed countries however after financial liberalization latin american stock markets have behaved more similarly to stock markets in developed countries whereas asian countries have become more dissimilar concordance of cycles across markets has increased significantly over time especially for latin american countries after liberalization

capital structure decisions during a firm s life cycle the study reported here examines the financing choices of small and medium sized firms i e those most vulnerable to information and incentive problems through the lens of the business life cycle we argue that the controversy in the empirical literature regarding the determinants of capital structure decisions is based on a failure to take into account the different degrees of information opacity and consequently firms characteristics and needs at specific stages of their life cycles the results show that in a bank oriented country firms tend to adopt specific financing strategies and a different hierarchy of financial decision making as they progress through the phases of their business life cycle contrary to conventional wisdom debt is shown to be fundamental to business activities in the early stages representing the first choice by contrast in the maturity stage firms re balance their capital structure gradually substituting debt for internal capital and for firms that have consolidated their business the pecking order theory shows a high degree of application this financial life cycle pattern seems to be homogeneous for different industries and consistent over time

an alternative explanation of the price puzzle abstract this paper proposes an explanation for the frequent appearance of a price puzzle in vars designed for monetary policy analysis it assumes that the data are generated by a model in which output and output gap are not equivalent while an econometrician follows the common practice of including only output in the var the omission of the output gap is shown to spuriously produce a price puzzle and several other incorrect conclusions in a class of commonly used models this can happen even if the model admits a triangular identification and if the forecasts produced by the misspecified var are optimal when the model is tested on us data all predictions are supported a commodity price index is not needed to solve the puzzle

the regional implications of macroeconomic policy this article examines the relative impact of changes in uk fiscal and monetary policy on the economies of the uk regions this is done by first considering the relative importance of fiscal flows and balances to the uk regions and then assessing their sensitivity to fiscal policy changes second the impact of monetary policy on the regions is considered in four cases these are direct effects on spending exchange rate effects income effects and asset price effects the conclusions are that different policy levers have markedly different regional implications with southern regions being more sensitive to changes in income taxes and government consumption and investment while northern regions are more sensitive to changes in national insurance and transfer payments all regions have become more sensitive to interest rate changes over the past decade but regions in the south are considerably more vulnerable particularly to any knock on effect on house prices copyright 1995 by oxford university press

collusion agglomeration and heterogeneity of firms abstract jehiel 1992 and friedman and thisse 1993 show that spatial agglomeration appears in a standard two stage location price model if symmetric firms collude in prices we introduce a cost difference between two firms we show that agglomeration never appears in a collusive equilibrium even when the cost difference between firms is sufficiently small

are the effects of monetary policy asymmetric huntley schaller by building on the hamilton 1989 markov switching model we examine questions like does monetary policy have the same effect in expansions and recessions given that the economy is currently in a recession does a fall in interest rates increase the probability of an expansion does monetary policy have an incremental effect on the growth rate within a given state or does it only affect the economy if it is sufficiently strong to induce a state change e g from recession to expansion as suggested by models with sticky prices or finance constraints interest rate changes have larger effects during recessions jel e52 e32 much of the recent work in macroeconomics has proceeded under the assumption that variables follow linear stochastic processes with constant coefficients as a result some of the richness of the burns mitchell analysis such as its focus on asymmetries between recessions and expansions may well have been lost blanchard and fischer 1989 7 i introduction for decades macroeconomists have debated whether monetary policy has the same effect on real output in expansions and recessions as far back as the 1930s keynes and pigou debated whether monetary policy would have less effect on output during a severe economic downturn in the 1960s there were active debates on a very different proposition namely whether the rightward portion of the aggregate supply curve was vertical so that monetary policy would have less effect on real output during expansions in this article we provide a new type of evidence on whether monetary policy has different effects depending on whether the economy is in an expansion or recession empirical evidence on this issue is particularly relevant in light of new theoretical work in macroeconomics that predicts asymmetric effects of demand shocks conditional on the state of the economy two examples of this work are s s type models of price adjustment and models in which there are agency costs of financial intermediation 1 the intuition for the latter class of models is simple 2 when there is information asymmetry in financial markets agents may behave as if they were constrained for a variety of reasons these finance constraints are more likely to bind during recessions when the net worth of agents is low an increase in interest rates will then have two effects on investment the standard effect of increasing the cost of capital and therefore reducing investment demand and an additional effect of reducing liquidity e g by increasing debt service obligations and thus reducing investment demand for constrained agents as a result monetary policy actions that change interest rates will have greater effects during a recession 3 the s s type price adjustment models of ball and mankiw 1994 caballero and engel 1992 and tsiddon 1993 lead to a convex aggregate supply curve and therefore also imply that monetary policy will have stronger effects during recessions one of the more frequently cited empirical papers on the potentially asymmetric effects of monetary policy is cover 1992 which finds evidence that positive monetary shocks have different effects from negative monetary shocks we are looking at a different type of asymmetry namely between booms and recessions we study asymmetries using an extension of the markov switching model developed by hamilton 1989 estimated over the period 1955 93 in hamilton s econometric specification the growth rate of output depends on a state variable that corresponds to an expansion or recession this approach has several advantages first unlike linear projections it allows for nonlinearities and asymmetries second in estimating the recession coefficients it gives greater relative weight to observations that most clearly correspond to recessions and similarly for the expansion coefficients

a simple framework for analysing bull and bear markets bull and bear markets are a common way of describing cycles in equity prices to fully describe such cycles one would need to know the data generating process dgp for equity prices we begin with a definition of bull and bear markets and use an algorithm based on it to sort a given time series of equity prices into periods that can be designated as bull and bear markets the rule to do this is then studied analytically and it is shown that bull and bear market characteristics depend upon the dgp for capital gains by simulation methods we examine a number of dgps that are known to fit the data quite well random walks garch models and models with duration dependence we find that a pure random walk provides as good an explanation of bull and bear markets as the more complex statistical models in the final section of the paper we look at some asset pricing models that appear in the literature from the viewpoint of their success in producing bull and bear markets which resemble those in the data copyright 2002 john wiley sons ltd

time on the market and price change the case of sydney housing market this article is an empirical study of characteristics related to residential properties sold in sydney australia we use comprehensive data on the sydney housing market composed of 25 489 observations for properties sold in the sydney region in 2011 we consider the fact that both the seller of the property and the real estate agent have a common goal to sell the property at the highest possible price in the shortest amount of time the analysis is divided into two major parts first we estimate a two stage least square model to analyse which parameters affect time on the market for a property second we propose a probit model that estimates the parameters that affect a revision in list prices the results contribute to the existing literature on the australian housing market by extending understandings about the parameters that could affect the time on the market of properties and the revision of their list prices

mixed duopoly location choice and shadow cost of public funds we examine the relationship between equilibrium and efficient levels of product differentiation in a mixed duopoly where a welfare maximizing public enterprise competes with a profit maximizing private firm we introduce shadow costs of public funding i e the excess burden of taxation the profits of public firms obtained by the government reduce these costs we find that in a mixed duopoly the level of product differentiation is too low for social welfare this result is in sharp contrast to the private oligopoly where the level of product differentiation is too high finally we show that when the shadow cost is high privatizing the public enterprise improves welfare

financial integration specialization and systemic risk this paper studies the implications of cross border financial integration for financial stability when banks loan portfolios adjust endogenously banks can be subject to sectoral and aggregate domestic shocks after integration they can share these risks in a complete interbank market when banks have a comparative advantage in providing credit to certain industries financial integration may induce banks to specialize in lending an enhanced concentration in lending does not necessarily increase risk because a well functioning interbank market allows to achieve the necessary diversification this greater need for risk sharing though increases the risk of cross border contagion and the likelihood of widespread banking crises however even though integration increases the risk of contagion it improves welfare if it permits banks to realize specialization benefits

product differentiation and price collusion the paper analyzes the implications of price collusion with or without monetary transfers on the degree of horizontal product differentiation we find that the principle of minimum differentiation holds i e firms sell the same product when there is no possibility of monetary transfers on the contrary we find that the presence of monetary transfers may induce some product differentiation the reason is that when monetary transfers are possible it is not essential per se to be well located in terms of relative market shares the outcome is then shown to be driven by only two forces 1 choosing a product closer to the competitor s improves the bargaining power 2 choosing a product closer to the one maximizing the joint profit improves the global firm efficiency

partial collusion fosters minimum product differentiation we investigate a spatial duopoly in which the firms simultaneously select locations at the beginning of time once chosen the locations are fixed forever but the firms will choose prices in each of a countably infinite succession of time periods we are interested in equilibrium behavior when the firms will collusively arrange a trigger strategy equilibrium in prices and will select their locations knowing that a particular such trigger strategy price equilibrium will ensue specifically we restrict our attention to prices that support an outcome on the profit possibility frontier at which the ratio of firm 1 s profits to those of firm 2 is positively related to the similar ratio of profits at the single shot noncooperative equilibrium for these profit sharing rules the resulting location equilibrium is unique and involves the pairing of firms at the market center

can a stochastic cusp catastrophe model explain housing market crashes abstract like stock market prices housing prices often exhibit temporary booms and busts a possible explanation for the observed abrupt changes is offered by the stochastic catastrophe model this paper addresses the question whether the catastrophe model can describe and predict the dynamics of housing markets we fit a stochastic cusp catastrophe model to empirical housing market data for six oecd countries us jp uk nl se and be two different estimation approaches are considered cobb s method and euler discretization the analysis shows that while cobb s approach describes the long run stationary density better euler discretization is more tailored for time series as it provides better one step ahead predictions proceeding using the euler discretization method we discuss the dynamics of housing markets in terms of the multiple equilibria cusp catastrophe model by considering the long term interest rate as an exogenous variable we obtain new insights into the policy implications of interest rate levels in particular concerning the stability of housing markets

bank firm relationships and allocative efficiency in northeastern and central italy and in the south abstract we make two contributions on the extent and impact of relationship banking based on close and long lasting bank firm customer relationships in the three sub systems in which italy may be subdivided first we show that relationship banking is more extensive in both sub systems where small businesses prevail the fast growing northeast and center nec and the south the marginal area of dependent development second we demonstrate that relationship banking improves the allocation of credit in the nec but worsens it in the south this evidence suggests that relationship banking may be beneficial or detrimental depending on the socio economic structure

monetary policy and the global housing bubble what caused the housing boom of the 2000s a number of researchers have suggested that loose monetary policy during the first half of the 2000s was a primary cause of the substantial run up in house prices in many countries however using a common statistical approach we find that monetary policy was not the main factor that should not be surprising although low interest rates raise house prices the increase in prices during the mid 2000s was much larger than the historical relationship between the two variables would suggest instead we investigate further the link between the marked loosening in terms and standards for mortgage credit and the most rapid increases in house prices this link provides some evidence for a story where credit provision and the demand for housing fed on each other and helped spur the housing boom our work suggests a greater role for macroprudential regulation rather than monetary policy in managing asset price booms jane dokko brian m doyle michael t kiley jinill kim shane sherlund jae sim and skander van den heuvel

does monetary policy have asymmetric effects on stock returns this paper investigates whether monetary policy has asymmetric effects on stock returns using markov switching models different measures of a monetary policy stance are adopted empirical evidence from monthly returns on the standard poor s 500 price index suggests that monetary policy has larger effects on stock returns in bear markets furthermore it is shown that a contractionary monetary policy leads to a higher probability of switching to the bear market regime

public policy towards r d in oligopolistic industries the importance of determining optimal policy towards r d cannot be exaggerated given the worldwide interest in fostering r d and given the significant differences between european and u s policies towards interfirm cooperation on r d moreover the problem is an inherently difficult one because of the complex nature of the r d process since r d is a component of fixed costs industries where it is important tend to be concentrated hence r d policy must go hand in hand with competition policy at the same time r d is like any form of investment in that it precedes the production stage hence issues of time consistency and strategic commitment inevitably arise in considering the choice of r d policy finally r d by one firm typically leads to spillovers wbich benefit other firms so that r d exhibits many of the character department of economics university college dublin belfield dublin 4 ireiatid for helpful discussions and comments we are grateful to two anonymous referees to pedro bartos steve martin massimo motta and damien neven and to participants at seminars in birmingham st andrew s and warwick at a cepr workshop on r d spillovers in lausanne at erwit 94 in caslel gandolfo eea 95 in prague the 1996 conference on industrial economics at universidad carlos iii de madrid and a meeting of the dublin economics workshop this paper was produced as part of the international economic performance programme of the centre for economic performance london school of economics supported by the u k esrc an earlier version was circulated as cepr discussion paper no 1243 see alexis jacquemin 1988 and stephen martin 1996 istics of a public good albeit one that is mostly privately produced tbe degree to which such spillovers occur and can be internalized is another crucial influence on the desirable pattem of intervention

emu and the regional impact of monetary policy rodriguez fuentes c j and dow s c 2003 emu and the regional impact of monetary policy reg studies 37 969 980 in this paper we focus on a topic which has been attracting renewed interest because of monetary unification in europe the regional dimension of national monetary policies most of the debate over the regional implications of the euro has been developed within the optimum currency area framework according to this theory european monetary policy would have regional effects when the countries of the euro zone had such structural differences as to produce asymmetric shocks these asymmetrical effects could only be offset by labour mobility and wage price flexibility however we argue here that in addition european monetary policy may have more general regional effects including in particular by producing a higher instability in the pattern of credit availability for some peripheral regions this latter possibility and the forces underlying it are explored here both at the theoreti

bank liquidity interbank markets and monetary policy a major lesson of the recent financial crisis is that the interbank lending market is crucial for banks facing large uncertainty regarding their liquidity needs this paper studies the efficiency of the interbank lending market in allocating funds we consider two different types of liquidity shocks leading to di erent implications for optimal policy by the central bank we show that when confronted with a distribu tional liquidity shock crisis that causes a large disparity in the liquidity held among banks the central bank should lower the interbank rate this view implies that the traditional tenet prescribing the separation between prudential regulation and mon etary policy should be abandoned in addition we show that during an aggregate liquidity crisis central banks should manage the aggregate volume of liquidity two di erent instruments interest rates and liquidity injection are therefore required to cope with the two di erent types of liquidity shocks finally we show that failure to cut interest rates during a crisis erodes financial stability by increasing the risk of bank runs

an alternative approach to the modelling of interest rate pass through and asymmetric adjustment abstract we propose an alternative approach to examine the nonlinear asymmetric behaviour of interest rates which can be both size and sign dependent compared to other widely used approaches our model performs quite well based on two model selection criteria

measuring the reaction of monetary policy to the stock market movements in the stock market can have a significant impact on the macroeconomy and are therefore likely to be an important factor in the determination of monetary policy however little is known about the magnitude of the federal reserve s reaction to the stock market in part because the simultaneous response of equity prices to interest rates makes it difficult to estimate this paper uses an identification technique based on the heteroskedasticity of stock market returns to measure the reaction of monetary policy to the stock market we find a significant policy response with a 5 percent rise fall in the s p 500 index increasing the likelihood of a 25 basis point tightening easing by about a half

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

can interest rates really control house prices effectiveness and implications for macroprudential policy this paper investigates how changes in the central bank policy and retail mortgage rates affected real housing prices in new zealand during the period 1999 2009 we find that real interest rates are significantly and positively related to real housing prices indicating that increases in the policy rate may not be effective in depressing real housing prices by testing interest rates we also find some evidence of housing price bubbles our findings suggest that the central bank could have limited housing price bubbles if it had started to intervene in the housing market prior to 2003 our results set international exemplars for using policy rates or macroprudential tools to cool the housing market where the extent of policy rate adjustments is limited by internal or external economic factors

interbank contagion at work evidence from a natural experiment this article tests financial contagion due to interbank linkages for identification we exploit an idiosyncratic sudden shock caused by a large bank failure in conjunction with detailed data on interbank exposures first we find robust evidence that higher interbank exposure to the failed bank leads to large deposit withdrawals second the magnitude of contagion is higher for banks with weaker fundamentals third interbank linkages among surviving banks further propagate the shock finally we find results suggesting that there are real economic effects these results suggest that interbank linkages act as an important channel of contagion and hold important policy implications jel g01 g21 g28 e58 since the onset of the financial turmoil increased uncertainty reflected particularly in counterparty risk has led banks to hoard liquidity this has resulted in a significant decline of trading in the interbank money markets jean claude trichet president of the european central bank december 2008

new methodology for constructing real estate price indices applied to the singapore residential market this paper develops a new methodology for constructing a real estate price index that utilizes all transaction price information encompassing both single sales and repeat sales the method is less susceptible to specification error than standard hedonic methods and is not subject to the sample selection bias involved in indexes that rely only on repeat sales the methodology employs a model design that uses a sale pairing process based on the individual building level rather than the individual house level as is used in the repeat sales method the approach extends ideas from repeat sales methodology in a way that accommodates much wider datasets in an empirical analysis of the methodology we fit the model to the private residential property market in singapore between q1 1995 and q2 2014 covering several periods of major price fluctuation and changes in government macroprudential policy the index is found to perform much better in out of sample prediction exercises than either the s p case shiller index or the index based on standard hedonic methods in a further empirical application the recursive dating method of phillips et al 2015a b is used to detect explosive behavior in the singapore real estate market explosive behavior in the new index is found to arise two quarters earlier than in the other indices

asymmetric effects of positive and negative money supply shocks this paper examines whether positive and negative money supply shocks have symmetric effects on output the results are consistent with the hypothesis that positive money supply shocks do not have an effect on output while negative money supply shocks do have an effect on output this finding is independent of whether or not expected money is assumed to affect output the results reported in this paper imply that the fed could increase the growth rate of real output by reducing the standard deviation of unexpected changes in the money supply

small business failure and external risk factors unlike much of the previous literature which has generally focused on internal risk factors this study seeks to explore the impact of macro economic factors on small business mortality the results suggest that economic factors appear to be associated with between 30 and 50 of small business failures depending on the definition of failure used as expected failure rates were positively associated with interest rates where failure was defined as bankruptcy and the rate of unemployment where failure was defined as discontinuance of ownership however somewhat unexpectedly failure rates were found to be positively associated with lagged employment rates where failure was defined as to prevent further losses and with current and lagged retail sales where failure was defined as either failed to make a go of it discontinuance of ownership or discontinuance of business this indicates that a strengthening economy may provide the trigger for an increase in voluntary business exits as individual proprietors seek to maximize the returns available to them on both their financial and human capital

is housing the business cycle evidence from us cities abstract in a recent paper leamer 2007 identified housing as an important precursor of the national business cycle previous work on the other hand has shown that regional cycles may not be synchronous with the aggregate cycle in this paper we analyze the relationship between housing and the business cycle at the msa level for a set of 51 us cities we find that declines in house prices are often not followed by declines in that city s employment while the growth rates in housing variables appeared to slow ahead of city level peaks we find no consistent statistical relationship suggesting a city s permits or prices influences its business cycle in fact we find that national permits are a better leading indicator for a city s employment than a city s own permits this suggest the possibility that housing is merely a proxy for other consumption or wealth indicators