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

nonmonetary effects of the financial crisis in propagation of the great depression this paper examines the effects of the financial crisis of the 1930s onthe path of aggregate output during that period our approach is complementary to that of friedman and schwartz who emphasized the monetary impact of the bank failures we focus on non monetary primarily credit related aspects of the financial sector output link and consider the problems of debtors as well as those of the banking system we argue that the financial disruptions of 1930 33 reduced the efficiency of the credit allocation process and that the resulting higher cost and reduced availability of credit acted to depress aggregate demand evidence suggests that effects of this type can help explain the unusual length and depth of the great depression this abstract was borrowed from another version of this item

liberalisation and r d in network industries the case of the electricity industry abstract electricity sector liberalisation has coincided with a significant decline in r d spending this paper reviews the industrial organisation literature on r d and innovation to explore the likely causes of the decline in r d spending in the electricity sector meanwhile r d productivity and innovative outputs in utilities and equipment suppliers appear to have improved however a lasting decline in r d expenditure can have a negative long term effect on technological progress and innovation in the sector we conclude that the decline in r d could have been predicted from the literature we also discuss the need to reorient the post liberalisation technology policy

future inequality in co2 emissions and the impact of abatement proposals this paper analyzes future carbon emissions inequality using a group decomposition of the gini index business as usual projections to the year 2100 for 135 countries show inequality in per capita emissions declines slowly next the impact on emissions levels and inequality of the kyoto protocol and other abatement proposals for annex ii countries in 2010 are measured with a focus on the gap narrowing and reranking effects substantial reranking of per capita emissions between annex ii and non annex ii countries will not occur unless the former reduce their emissions by at least 50 versus 1990 levels and the latter continue growing unabated

risk price regulation and irreversible investment abstract we show that regulators price setting rate base and allowed rate of return decisions are inextricably linked if prices are set so that regulated firms just break even whenever they are forced to invest breaking even ex ante is a necessary condition for ramsey pricing to be sustainable over time unless regulators adopt traditional rate of return regulation the irreversibility of much infrastructure investment significantly alters the results of the approach to price setting described by marshall et al 1981 marshall william j yawitz jess b greenberg edward 1981 optimal regulation under uncertainty journal of finance 36 4 909 921 in particular the practice of optimizing inefficient assets out of the regulated firm s rate base as occurs in total element long run incremental cost calculations in telecommunications exposes the firm to demand risk the firm requires an economically significant premium for bearing this risk and this premium is a function of both the systematic and unsystematic risk of demand shocks in addition we argue that if the firm is to break even under incentive regulation then the level of the rate base will exceed the optimized replacement cost by an amount which we interpret as the value of the excess capacity of the firm s assets if this component is excluded from the rate base incentive regulation will not be sustainable

money income prices and interest rates including data from the 1980s sharply weakens the postwar time series evidence indicating significant relationships between money however defined and nominal income or between money and either real income or prices separately focusing on data from 1970 onward destroys this evidence altogether evidence indicating cointegration of real income and real money balances with due allowance for the effect of interest rates also deteriorates when the sample extends through the 1980s a positive finding is that the spread between the commercial paper rate and the treasury bill rate consistently contains highly significant information about future movements in real income copyright 1992 by american economic association

optimal risk allocation for regulated monopolies and consumers abstract the model shows how a regulated monopolist s price should change as random cost and demand parameters are revealed the regulator has a ramsey type problem with a linear tariff a trade off between allocative efficiency and risk sharing typically exists the attitudes of the consumer and the firm to both income and price risk determine how the price should move sufficient conditions are found for price adjustment schemes used in practice to be optimal these schemes include full partial and zero pass through of marginal costs and price caps average cost pricing and caps on total revenue for demand risk

optimal regulation of network expansion we model the optimal regulation of continuous irreversible capacity expansion where a regulated firm has private information about capacity costs investments are financed from the firm s cash flows and demand is stochastic the optimal mechanism can be implemented as a revenue tax that increases with the level of the price cap if the asymmetric information has large support then the optimal mechanism consists of a laissez faire regime for low cost firms that is the firm s price cap corresponds to that of an unregulated monopolist and it is not taxed this maximal distortion at the top is necessary to provide information rents as direct subsidies are not feasible

optimal regulation under uncertainty this paper is concerned with the problem of price regulation when demand is uncertain uncertainty gives rise to substantial difficulties in determining both the return a firm s owners should be provided and a set of prices capable of producing that return we argue that conventional approaches to price regulation are incapable of attaining the economically desirable objectives of efficiency and an equitable return to investors the deficiencies in current practices are attributable to the separation of the risk measurement return determination and price setting activities in the conventional approach we present a model of the regulated firm that synthesizes contemporary financial market theory and the theory of the firm under uncertainty in our approach the income stream produced by the firm is valued ex ante in the financial market according to investors perceptions and preferences over risk return characteristics we portray the firm as producing risk and return by choosing among available production technologies to maximize its market value given the prices set by regulators within this framework it is shown that regulators can choose the lowest prices consistent with an equitable return to investors we also show that prices so chosen induce the choice of the optimal technology by the firm in the traditional regulatory framework as thoroughly described and explained by bonbright 3 the goal of regulators is to set rates in such a way that all costs are covered including a return on invested capital commensurate with the risk of equity investment determination of the latter is difficult at best it is generally agreed that 1 the fair return depends on risk 2 the return required by investors as compensation for risk bearing is most accurately measured by observing the returns to competitive firms in otherwise similar circumstances and 3 estimation of required returns by observation of other regulated firms is generally inappropriate since the risk and regulation effects are confounded more recently myers 13 has argued for the application of finance theory to rate determination within the traditional regulatory framework in particular he argues that the capital asset pricing model capm developed by sharpe 14 lintner 9 and mossin 12 is especially well suited for this purpose since a single quantitative measure of risk is relevant in that model further since the capm offers an explicit equilibrium risk return relationship information about the risks and returns of all firms can be directly employed in determining the fair return to a regulated firm

financial intermediation and economic performance historical evidence from five industrialized countries this paper examines the nature of links between the intensity of financial intermediation and economic performance that operated in the united states the united kingdom canada norway and sweden over the 1870 1929 period after describing the coevolution of the financial and real sectors in these countries vector error correction models vecms establish the quantitative importance of long run relationships among measures of financial intensity and real per capita levels of output and the monetary base granger causality tests then suggest a leading role for the intermediation variables in real sector activity while feedback effects are largely insignificant the results suggest an important role for intermediation in the rapid industrial transformations of all five countries

inequality of energy intensities across oecd countries a note abstract this paper proposes the use of theil s second measure to analyze international energy intensity differences this index allows differences to be broken down within and between groups of countries in a consistent manner an analysis of oecd countries for the period 1971 1999 shows some basic points first the fall in energy intensities differences is attributable both to within group and between group inequality components second between group inequalities are currently the main contributor to the whole inequality value finally a detailed exploration on within group inequalities reveals the significant explanatory role played by eu countries

what fraction of a capital investment is sunk costs to what extent are capital investments sunk costs this question is addressed by examining the salvage values of discarded metalworking machinery even though such assets are expected to be non specific many discarded assets are scrapped rather than sold on second hand markets econometric results suggest that firms can only expect to get back 20 50 percent of the initial price of a new machine once it is installed the results also indicate differences in value age profiles across firms but provide only weak support for the hypothesis that salvage values are particularly low during recessions

money and credit in the monetary transmission process the title of this session asks about the roles of money or credit in the transmission of monetary and real shocks our answer repeated in different forms for more than two decades is that the analysis of the transmission process is incomplete without both the money and credit markets and their interaction for many years economists ignored the role of the credit markets recently there has been some change concerns about financial fragility banking failures debt default and loan rationing focussed attention on credit markets reexamination of experience during the early 1930 s ben bernanke 1983 raises an issue about whether credit market shocks operated 1 as an independent or exogenous impulse supplementing and reinforcing the monetary decline or 2 as part of the interaction of credit money and other financial markets

financial development and economic growth the role of stock markets utilizing time series methods and data from five developed economies we examine the relationship between stock market development and economic growth controlling for the effects of the banking system and stock market volatility our results support the view that although both banks and stock markets may be able to promote economic growth the erects of the former are more powerful they also suggest that the contribution of stock markets on economic growth may have been exaggerated by studies that utilize cross country growth regressions

the credit view old and new recent writings in the so called credit view focus on binding finance constraints of macroeconomic activity which arise from the incomplete substitutability of bank credit and from changes in borrowers net worth they criticize the standard approaches in the money view for not taking full account of the observable effects of monetary restrictions on real activity in this paper the new credit view is contrasted with older macroeconomic theories that placed special emphasis on the banks systemic potential to expand credit beyond planned saving the comparative discussion of the underlying arguments about bank behaviour about the non neutrality of credit money and about the transmission of monetary policy impulses reveals some shortcomings in the new view history helps moreover to set the conventional confrontations of the credit view and the money view in perspective jel classification b22 e32 e44 e51 e52

equity markets and growth cross country evidence on timing and outcomes 1980 1995 abstract the rapid expansion of organized equity exchanges in both emerging and developed markets has prompted policymakers to raise important questions about their macroeconomic impact yet the need to focus on recent data poses implementation difficulties for econometric studies of dynamic interactions between stock markets and economic performance in individual countries this paper overcomes some of these difficulties by applying recent developments in the analysis of panels with a small time dimension to estimate vector autoregressions for a set of 47 countries with annual data for 1980 1995 after describing recent theories on the role of stock markets in growth and considering a pure cross sectional empirical approach our panel vars show leading roles for stock market liquidity and the intensity of activity in traditional financial intermediaries on per capita output the findings underscore the potential gains associated with developing deep and liquid financial markets in an increasingly global economy

mean variance asset liability management cointegrated assets and insurance liability abstract the cointegration of major financial markets around the globe is well evidenced with strong empirical support this paper considers the continuous time mean variance mv asset liability management alm problem for an insurer investing in an incomplete financial market with cointegrated assets the number of trading assets is allowed to be less than the number of brownian motions spanning the market the insurer also faces the risk of paying uncertain insurance claims during the investment period we assume that the cointegration market follows the diffusion limit of the error correction model for cointegrated time series using the markowitz 1952 mv portfolio criterion we consider the insurer s problem of minimizing variance in the terminal wealth given an expected terminal wealth subject to interim random liability payments following a compound poisson process we generalize the technique developed by lim 2005 to tackle this problem the particular structure of cointegration enables us to solve the alm problem completely in the sense that the solutions of the continuous time portfolio policy and efficient frontier are obtained as explicit and closed form formulas

money and output viewed through a rolling window abstract we examine the extent to which fluctuations in the money stock anticipate or granger cause fluctuations in real output using a variety of rolling window and increasing window estimation techniques various models are considered using simple sum as well as divisia measures of m 1 and m 2 income prices and both the t bill rate and the commercial paper rate findings indicate that the relation between income money prices and interest rates is stable as long as sufficient data are used and that there is cointegration among the variables considered although cointegration spaces become very difficult to estimate precisely when smaller windows of data are used further both m 1 and m 2 are shown to be important predictors of income for the entire period from 1960 2 1996 3 based on modified versions of what we term the most damaging specifications from friedman and kuttner 1993 and thoma 1994 our new evidence is based in part on a rather novel model selection approach to examining the relationship between money and income 1998 elsevier science b v all rights reserved

international ecological footprint inequality a methodological review and some results scarcities of environmental services are no longer merely a remote hypothesis consequently analysis of their inequalities between nations becomes of paramount importance for the achievement of sustainability this paper aims on the one hand at revising methodological aspects of the inequality measurement of certain environmental data and on the other at extending the scarce empirical evidence relating to the international distribution of ecological footprint ef most of the techniques currently important in the literature are revised and then tested on ef data with interesting results we consider the underlying properties of different inequality indices those indices which fit best with environmental inequality measurements are cv 2 and ge 2 because of their neutrality property subgroup and source decompositions are also discussed from a methodological perspective empirically this paper contributes to the environmental inequality measurement of ef this inequality has been quite stable subgroup decomposition by using exogenous country groups world bank classification conclude that between group inequality explains almost the totality of international ef inequality source decomposition warns of the dangers of confining co 2 emissions reduction to crop based energies because of the implications for basic needs satisfaction

credit income and causality a contemporary co integration analysis abstract in this study we investigate the macroeconomic fundamental issue of causal relationship between credit and money income for the us postwar economy along the lines of the credit view theorists in the long run we provide significant evidence that credit causes income further we support the view that there is a rather weak causality effect from income to credit in the long run indeed we identified that there is a dynamic causality effect in the short run from income changes to credit ones a contemporary co integration analysis is applied using the maximum likelihood method additionally considering the formulated var a stability analysis of the equivalent first order dynamic system has been performed finally dynamic forecasts from the corresponding ecvar error correction var are obtained in order to verify the validity of the co integration vector used it may be useful to mention that we have not met in the relevant literature the type of forecasting presented here