the bond old bond spread abstract i document the profits on a trade that is long the old 30 year treasury bond and short the new 30 year treasury bond and is rolled over every auction cycle from june 1995 to november 1999 despite the systematic convergence of the spread over the auction cycle the average profits are close to zero the difference in repo market financing rates between the two bonds is a significant cost of carry in this trade i show that variation in the bond old bond spread is driven by the treasury supply of 30 year bonds as well as aggregate factors affecting investors preference for liquid assets

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

consumption and the credit market abstract this paper uses a kalman filter model to allow the fraction of current income consumers to vary over time and shows that these consumers are liquidity constrained by relating this percentage to measures of credit market tightness

breakthrough china s and india s transition from production to innovation summary china and india have become major producers of products and services for global markets this article explores to what extent they are also building up innovation capabilities it draws on a combination of approaches innovation systems global value chains and professional networks to analyze four of the most dynamic industries we find that mounting innovation efforts only rarely materialized in cutting edge innovations but suggest that if capital accumulation proceeds at the current pace innovation capabilities will rapidly be built up in china and with a time lag india we conclude by setting out the implications for both the developed and the developing world

international sourcing and supply chain stability an international supply chain is conceptualized as a complex dynamic system in which disruptions interact with long shipping and lead times to generate costs findings from a case study and simulation model indicate that demand related disruptions created substantial and unexpected costs in terms of expedited shipping high inventories and lower demand fulfillment production related disruptions declined over time but demand related disruptions did not implications for management are discussed

is there a role for monetary aggregates in the conduct of monetary policy abstract we examine the potential policy role of monetary aggregates by attempting to use them as effectively as possible in the analysis of empirical relationships we focus on their role as information variables since any more ambitious use such as in a policy rule would presuppose some information content in the aggregates our results show that in the united states since 1979 the monetary aggregates fall considerably short of those requirements and results with german m3 are hardly more favorable we also investigate whether empirical relationships are not reflective of information relationships because of the use of these variables in countercyclical policy the results are not consistent with that interpretation

silicon envy how global innovation clusters hurt or stimulate each other across developed and emerging markets the authors examine intercluster dynamics among rival global clusters on monthly counts of patents startups and new product commercializations between 1999 and 2014 while controlling for numerous exogenous variables results show that rival innovation clusters facilitate rather than hinder each other s growth due to resources complementarities reverse fertilization occurs from emerging to developed clusters contrary to the received wisdom this study is the first to show intercluster dynamics as important drivers of cluster growth to explain the counterintuitive findings the authors draw upon the coopetition view which suggests mutually beneficial growth across all rival clusters rather than zero sum gains

in defense of base drift the federal reserve has been criticized for allowing the base from which it calculates its target growth paths for the monetary aggregatesto drift from year to year in response to past deviations from target drift in the base implies that target misses permanently affect the levels of the monetary aggregates using a simple theoretical model this paper shows that the optimal degree of base drift consistent withprice stability depends on the importance of permanent versus transitory income and velocity disturbances neither zero base drift nor complete base drift are likely to be compatible with price stability copyright 1986 by american economic association

conditional exchange rate volatility and the volume of foreign trade evidence from seven industrialized countries there has long been a concern over the volatility of exchange rates and their impact on the volume of foreign trade however very little attention has been paid to the choice of an appropriate volatility variable as well as the proper specification of the trade equation the sample standard deviation of the exchange rate has been used as a proxy for exchangerate uncertainty in empirical studies that examine the effects of exchange rate uncertainty on the volume of foreign trade see for example akhtar and hilton 1 and gotur 27 these studies have provided conflicting evidence on this issue it has been argued that use of the sample standard deviation is inappropriate because the empirical distribution of exchange rates is not normal 22 10 in this regard subsequent empirical research 12 36 40 41 11 has employed a moving standard deviation of the rate of change of the exchange rate as a proxy for exchange rate uncertainty chowdhury 11 obtained a clear pattern of results that support the hypothesis that the higher volatility of exchange rates led to a reduction in international trade transactions after the breakdown of the bretton woods system in march 1973 other studies have reported ambiguous results 2 the moving standard deviation used in these studies has been criticized in the literature for a ignoring relevant information on the random process generating exchange rates 18 b underestimating the effect of volatility on decisions 52 c distorting the measurement of the volatility variable by smoothing the series 9 and d injecting an element of arbitrariness into the calculation through decisions about the order m of the moving average 43 3

potential information and target variables for uk monetary policy the relationship between traditional monetary policy goal variables nominal gdp real gpd and the inflation rate and a number of financial market variables is investigated the question examined is which if any of these financial market variables monetary aggregates interest rates and interest rate spreads are potentially useful as either information variables or intermediate targets while the implications concerning the usefulness of the financial variables considered are pessimistic concerning nominal gdp more robust relationships are found for real gdp and inflation the latter finding is of interest given the current uk monetary policy strategy of inflation targeting our results are however more supportive of the usefulness of several financial variables as information variables than as intermediate targets

open vs sealed bid auctions testing for revenue equivalence under singapore s vehicle quota system using data from the auction of vehicle quota licenses in singapore we study if revenue equivalence holds when the auction format was switched from a sealed bid format may 1990 to june 2001 to an open bidding format since july 2001 our econometric analysis indicates the change in auction format led to a change in bidding behavior on average the quota license premium under the open bidding format is about us 1000 about 7 5 of the category e license price in june 2001 lower compared to the forecast level that would have prevailed if there had been no change in the auction format

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

default probabilities for mortgages abstract models now exist for valuing the default option embedded in a mortgage implicitly these models generate all the information necessary to determine the probability of default in any possible situation economists and policymakers may find such default probabilities considerably more interesting than the nonobservable dollar value of the default option this paper provides the analytical procedure necessary to calculate such probabilities and presents a wide range of results the decision to terminate a mortgage results in the loss of the options to default or prepay in the future because of this consideration the price of a house must fall below the point of zero equity before a rational borrower defaults we provide evidence that even in the absence of transaction costs this value of delay results in substantial levels of negative equity being observed without default occurring in fact by not accounting for the value of delay most of the current empirical literature cited in this article substantially overestimates the role of transaction costs in the decision to default

us domestic currency in forecast error variance decompositions of inflation and output we find that domestic currency currency corrected for foreign holdings has a substantial share in forecast error variance decomposition of us inflation we also find that domestic currency has higher share of the forecast error variance decomposition of us real output than any other narrow monetary aggregate we consider

new silicon valleys or a new species commoditization of knowledge work and the rise of knowledge services clusters this paper explores knowledge services clusters kscs as a distinct and increasingly important form of geographic cluster in particular in developing countries kscs are defined as geographic concentrations of lower cost skills serving global demand for increasingly commoditized knowledge services based on prior research on clusters and services offshoring and data from the offshoring research network orn major properties and contingencies of ksc growth are discussed and compared with both high tech clusters and low cost manufacturing clusters special emphasis is put on the ambivalent effect of commoditization of knowledge work on ksc growth it is proposed that kscs attract most client projects if service commoditization is medium whereas higher or lower commoditization either increases global competitive pressure or lowers demand and economies of scale and scope ksc attractiveness is further related to the perceived availability of skills at relatively low costs and cluster connectedness with client economies through corporate networks and professional communities findings not only advance current debates on clusters global services sourcing and the geography of knowledge production but also have important policy implications

fragmenting global business processes a protection for proprietary information this study shows that when sourcing business services in foreign countries the fragmentation of processes across production units acts as an operational level adjustment variable for firms to adapt their information protection approach to the regulative environment of the host country they have selected and to the possibility to use internal controls over the activities performed abroad we hypothesize that when the above mechanisms are not available firms are more likely to fragment processes across multiple foreign production units instead of collocating all process tasks in the same unit thanks to it enabled integration capabilities firms can exploit the complementarities between the dispersed fragments of a process while reducing the misappropriation hazard of individual fragments empirical results and robustness tests are strongly congruent with these hypotheses we find also that the propensity to turn to the process fragmentation protection mechanism increases with firm host country specific experience and with the alternative value of the proprietary information involved in the activity sourced abroad

how hybrids manage growth and social business tensions in global supply chains the case of impact sourcing this study contributes to the growing interest in how hybrid organizations manage paradoxical social business tensions our empirical case is impact sourcing hybrids in global supply chains that hire staff from disadvantaged communities to provide services to business clients we identify two major growth orientations community focused and client focused growth their inherent tensions and ways that hybrids manage them the former favors slow growth and manages tensions through highly integrated client and community relations the latter promotes faster growth and manages client and community relations separately both growth orientations address social business tensions in particular ways but also create latent constraints that manifest when entrepreneurial aspirations conflict with the current growth path in presenting and discussing our findings we introduce preempting management practices of tensions and the importance of geographic embeddedness and distance to the paradox literature

consumer ruthlessness and mortgage default during the 2007 to 2009 housing bust from 2007 to 2009 u s house prices plunged and mortgage defaults surged while ostensibly consistent with widespread ruthless default analysis of detailed mortgage and house price data indicates that borrowers do not walk away until they are deeply underwater far deeper than traditional models predict the evidence suggests that lender recourse is not the major driver of this result we argue that emotional and behavioral factors play an important role in decisions to continue paying borrower reluctance to walk away implies that the moral hazard cost of default as a form of social insurance may be lower than suspected this article is protected by copyright all rights reserved

a perspective on regional and global strategies of multinational enterprises multinational enterprises mnes are the key drivers of globalization as they foster increased economic interdependence among national markets the ultimate test to assess whether these mnes are global themselves is their actual penetration level of markets across the globe especially in the broad triad markets of nafta the european union and asia yet data on the activities of the 500 largest mnes reveal that very few are successful globally for 320 of the 380 firms for which geographic sales data are available an average of 80 3 of total sales are in their home region of the triad this means that many of the world s largest firms are not global but regionally based in terms of breadth and depth of market coverage globalization in terms of a balanced geographic distribution of sales across the triad thus reflects a special and rather unusual outcome of doing international business ib the regional concentration of sales has important implications for various strands of mainstream ib research as well as for the broader managerial debate on the design of optimal strategies and governance structures for mnes journal of international business studies 2004 35 3 18 doi 10 1057 palgrave jibs 8400073

the success of the fed and the death of monetarism i introduction there has been a significant reduction in the macroeonomic volatility in the u s economy during the last 20 yrs the standard deviation of the central bank s target variables like inflation and nominal gross domestic product gdp declined substantially however at the same time the standard deviation of monetary aggregates has increased 1 this unique macroeconomic phenomenon is also associated with the disappearance of correlation between inflation and money growth this is in contrast to the monetarist argument that suggests that an important cause of economic instability is excess variation in the growth rate of money the most famous monetarist prescription for monetary policy is milton friedman s proposal that the growth rate of money should be constant there is however no evidence of falling variations in the growth rate of money over the last 20 yrs in fact the standard deviation of the rate of growth of monetary base has increased from 1 63 during 1960 1982 to 3 1 during 1983 2003 milton friedman in an interview with taylor 2001 pointed out that there was a breakdown in the relationship between money and gdp after 1980 which came along with a dramatic reduction in the variability of growth rate of gdp friedman says i am puzzled about is whether and if so how they suddenly learned how to regulate the economy does alan greenspan have an insight into the movements in the economy and other shocks that the people don t have friedman further says it looks as if somehow in 1991 1992 they were able to install a good thermostat instead of a bad one is alan greenspan a good thermostat compared to other fed chairmen taylor 2001 there is widespread consensus on the effect of monetary policy on inflation in the long run however there is no consensus on how monetary policy affects real output in the short run there is now a consensus among economists that the original monetarist proposition that there is no long run trade off between inflation and unemployment is correct monetarism can also be viewed as the platform from which the rational expectation revolution took off however the monetarist proposition that economic fluctuation is caused by excessively variable monetary growth has largely been abandoned authors like estrella and mishkin 1997 and feldstein and stock 1994 find that monetary aggregates do not have a significant informational content after 1979 and hence cannot be used as an information variable for the stance of monetary policy their finding is also consistent with dwyer 2002 and dwyer and hafer 1999 who find that there is little correlation of inflation and money growth across countries on quarterly and annual bases after 1979 the literature finds significant correlation e g lucas 1980 between money growth and inflation in the pre 1979 period but this correlation has disappeared after 1979 see table 1 and figures 1 4 if stabilization policy makes inflation a constant then there will be no correlation between inflation and policy as no variable is correlated with a constant according to kochin 1973 if the monetary authority is able to stabilize the economy by optimally setting the variability of the control variables e g monetary aggregates and interest rate then there will be no correlation between the goal variable e g inflation and nominal gdp and the control variable even if the policy is not perfect if the policy is too variable and even if it is well timed then a countercyclical policy adopted by the central bank might lead to greater variability in the goal variable as argued by friedman 1953 poole 1993 1994 and tanner 1993 also argue that one predictable consequence of optimal monetary policy is that the correlation between monetary policy instruments and policy goals will be driven to zero poole further contends that it is obvious to any careful reader of theil 1964 that optimally variable policy will give rise to a zero correlation between policy and goal variable

mortgage default during the u s mortgage crisis this paper asks which theories of mortgage default are quantitatively consistent with observations in the united states during 2002 2010 theoretical models are simulated for the observed time series of aggregate house prices their predictions are then compared to actual default rates on prime fixed rate mortgages an out of sample test discriminates between estimated reduced forms of the two most prominent theories the test reveals that the doubletrigger hypothesis attributing mortgage default to the joint occurrence of negative equity and a life event like unemployment outperforms a frictionless option theoretic default model based on this finding a structural partialequilibrium model with liquidity constraints and idiosyncratic unemployment shocks is presented to provide micro foundations for the double trigger hypothesis in this model borrowers with negative equity are more likely to default when they are unemployed and have low liquid wealth the model explains most of the observed strong rise in mortgage default rates a policy implication of the model is that subsidizing homeowners can mitigate a mortgage crisis at a lower cost than bailing out lenders

new trends in globalization of corporate r d and implications for innovation capability in host countries a survey from india abstract since the mid 1980s transnational corporations tncs have started performing some of their strategic research and development r d in some developing countries the primary driving forces behind such a move by tncs are technology related i e to gain access to science and technology s t resources and cost related i e to exploit the cost differentials r d activities related to product development for regional global markets and generic technologies by tncs are diffusing skills and knowledge to the host countries by establishing linkages between the local innovation systems and tncs worldwide r d network such r d helps to integrate some developing countries into global technology development activities

mortgage terminations heterogeneity and the exercise of mortgage options as applied to the behavior of homeowners with mortgages option theoiy predicts that mortgage prepayment or default will be exercised if the call or put option is in the money by some specific amount our analysis tests the extent to which the option approach can explain default and prepayment behavior evaluates the practical importance of modeling both options simultaneouisly and models the unobserved heterogeneity of borrowers in the home mortgage market the paper presents a uinified model of the competing risks of mortgage termination by prepayment and default considering the two hazards as dependent competing risks that are estimated jointly it also accounts for the unobserved heterogeneity among borrowers and estimates the unobserved heterogeneity simultaneously with the parameters and baseline hazards associated with prepayment and default functions our results show that the option model in its most straightfolward version does a good job of explaininig default and prepayment but it is not enouigh by itself the simultaneity of the options is very important empirically in explaining behavior the results also show that there exists significant heterogeneity among mortgage borrowers ignoring this heterogeneity results in serious errors in estimating the prepayment behavior of homeowners

global disaggregation of information intensive services information intensive services are being globally disaggregated as corporations respond to the pressures of increasing global competition and take advantage of the opportunities made available by the progress of information technology and the emerging global work force in order to globally disaggregate services corporations must decide whether or not to carry out a service activity within the organization and where to locate it within or outside the geographic boundary of the home base country this paper analyzes the opportunities and challenges of global disaggregation of information intensive services specifically the paper proposes a taxonomy of disaggregation and develops a theoretical framework that identifies the criteria and guidelines for successfully selecting service activities to be globally disaggregated

offshoring administrative and technical work new fields for understanding the global enterprise in this paper we introduce the journal of international business studies special issue on offshoring administrative and technical services ats in doing so we have attempted to locate the topic within the international business research tradition as well as suggest challenges and opportunities that the phenomenon offers to theoretical and empirical research in the field we examine the interplay of costs knowledge and innovation in the evolution of ats offshoring from modest beginnings to its current stature as an accepted business practice we suggest that understanding the continuing evolution of ats offshoring requires researchers to take into account not only the business imperative of cost saving but also a more complex set of underlying factors and potential outcomes we argue that the rapid growth of ats offshoring has brought about an accumulation of resources including financial flows knowledge infrastructure and human capital to create new platforms for knowledge creation and innovation low costs may characterize the initial conditions for offshoring but they also provide the basis for up market moves as firms increasingly pursue innovation based strategies we introduce the papers in the special issue as integral elements in our discussion contributing new ideas that stimulated our thinking and hopefully will do the same for others seeking to understand this emerging area of globalization and international managerial practice journal of international business studies 2009 40 887 900 doi 10 1057 jibs 2009 22

portfolio choice and trading volume with loss averse investors this paper presents a model of portfolio choice and stock trading volume with lossaverse investors the demand function for risky assets is discontinuous and non monotonic as wealth rises beyond a threshold investors follow a generalized portfolio insurance strategy this behavior is consistent with the evidence in favor of the disposition effect in addition loss averse investors will not hold stocks unless the equity premium is quite high the elasticity of the aggregate demand curve changes substantially depending on the distribution of wealth across investors in an equilibrium setting the model generates positive correlation between trading volume and stock return volatility but suggests that this relationship should be non linear

stochastic trends and economic fluctuations are business cycles mainly the result of permanent shocks to productivity this paper uses a long run restriction implied by a large class of real business cycle models identifying permanent productivity shocks as shocks to the common stochastic trend in output consumption and investment to provide new evidence on this question econometric tests indicate that this common stochastic trend cointegration implication is consistent with postwar u s data however in systems with nominal variables the estimates of this common stochastic trend indicate that permanent productivity shocks typically explain less than half of the business cycle variability in output consumption and investment copyright 1991 by american economic association

offshoring and the global distribution of work implications for task interdependence theory and practice a recent offshoring research network orn global survey of offshoring shows that since 2004 management concerns about operational issues on achieving the benefits of offshoring have increased significantly in this paper we examine inter task interdependence a key operational determinant of inter site interaction and communications in offshoring we analyze existing theories of interdependence to examine the extent to which they provide guidance for understanding the interaction and communication requirements between work segments that are offshored and distributed across the globe using a series of mini cases on globally distributed work gdw we show how the traditional typology of interdependence developed in the 1960s and 1970s is no longer adequate for understanding and managing task interdependencies in gdw we propose three concepts to address this problem integration interdependence hand offs and information stickiness we then show how our revised typology of interdependence enables a better understanding of the interactions and communication requirements between sites using this revised theory we propose guidelines for work design and examine their implications for practical offshoring and work distribution decisions implications for theory and practice for mnes engaged in offshore relationships are discussed

outsourcing and offshoring implications for productivity of business services this paper reviews the implications of outsourcing and offshoring for the productivity of business services in the uk official statistics indicate that business service productivity has grown by over 20 per cent in the last 7 years at the same time as employment grew by 20 per cent the paper considers possible factors that account for the simultaneous growth of employment and productivity first we discuss outsourcing and offshoring and their role in enhancing productivity through greater specialization standardization and consolidation of business processes and a shift to higher value added services outsourcing of business services is interpreted as part of corporate restructuring namely as the unbundling of corporate functions as well as vertical disintegration second as some services become more like products both low skilled and high skilled jobs are subjected to productivity growth through standardization and digitization it is argued however that the future of business service productivity is on a knife edge depending on the mix of two sources of productivity enhancement namely greater standardization and capturing value from customized solutions copyright 2006 oxford university press

monetary policy and the transaction role of money in the us the declining importance of money in transactions can explain the well known fact that u s interest rate policy was passive in the pre volcker period and active after 1982 we generalise a standard cashless new keynesian model woodford2003 by incorporating an explicit transaction role for money in the pre volcker period we estimate that money did play an important role and determinacy required a passive interest rate policy however after 1982 money no longer played an important role in facilitating transactions correspondingly the conventional view prevails and an active policy ensured equilibrium determinacy

recourse and residential mortgage default evidence from us states we quantify the effect of recourse on default and find that recourse affects default by lowering the borrower s sensitivity to negative equity at the mean value of the default option for defaulted loans borrowers are 30 more likely to default in non recourse states furthermore for homes appraised at 500 000 to 750 000 borrowers are twice as likely to default in non recourse states we also find that defaults are more likely to occur through a lender friendly procedure such as a deed in lieu in states that allow deficiency judgments we find no evidence that mortgage interest rates are lower in recourse states the author 2011 published by oxford university press on behalf of the society for financial studies all rights reserved for permissions please e mail journals permissions oup com oxford university press

credit growth monetary policy and economic activity in a three regime tvar model we employ a threshold vector autoregression tvar methodology in order to examine the nonlinear nature of the interactions among credit market conditions monetary policy and economic activity we depart from the existing literature on the subject along two dimensions first we focus on a model in which the relevant threshold variable describes the state of economic activity rather than credit market conditions second in contrast to the existing tvar literature which concentrates exclusively on single threshold models we allow for the presence of a second threshold which is overwhelmingly supported by all relevant statistical tests our results indicate that the dynamics of the interactions among credit market conditions monetary policy and economic activity change considerably as the economy moves from one phase of the business cycle to another and that single threshold tvar models are too restrictive to fully capture the nonlinear nature of those interactions the impact of most shocks tends to be largest during periods of sub par economic growth and smallest during times of moderate economic activity by contrast credit risk shocks have the largest impact when output growth is considerably above it long term trend

the determinants of attitudes towards strategic default on mortgages we use survey data to measure households propensity to default on mortgages even if they can afford to pay them strategic default when the value of the mortgage exceeds the value of the house the willingness to default increases in both the absolute and the relative size of the home equity shortfall our evidence suggests that this willingness is affected by both pecuniary and non pecuniary factors such as views about fairness and morality we also find that exposure to other people who strategically defaulted increases the propensity to default strategically because it conveys information about the probability of being sued

on consequences and criticisms of monetary targeting the purpose of this paper is to review and evaluate the most important existing criticisms of policy strategies that feature adherence to money stock targets four main categories of criticism and counterargumerits are analyzed the first of these involves the claim that accurate money stock control is infeasible while the second contends that such control can only be obtained along with extreme volatility of interest rates the third emphasizes difficulties resulting from technical change and deregulation and the fourth concerns strategic issues of rules vs discretion activist vs non activist policy and the logical function of intermediate targets this abstract was borrowed from another version of this item

the impact of china on latin america and the caribbean summary the rapid growth of china and its increased integration with the global economy is having both direct and indirect effects on the latin american and caribbean region the paper focuses on the impacts of china on latin american trade and foreign direct investment flows it identifies the main channels through which china s growth is affecting the region and undertakes a preliminary analysis of the impacts on development it is shown that there are winners and losers in the region both at the country and sector level

separable but not equal the location determinants of discrete services offshoring activities in this paper we explore the question of why firms offshore particular services to specific geographic locations we draw on research related to the unique characteristics of services in trade and commerce and more recent analyses of the transnational unbundling and spatial dispersion of business processes we move beyond a simple assessment of the cost sensitivity or relative sophistication of offshoring services and develop a typology emphasizing the degree to which offshoring services activities are interactive repetitive or innovative we suggest that the location of offshoring projects will depend on the particular mix of these attributes and test this assertion using a data set of 595 export oriented offshore services projects initiated from 2002 to 2005 by us and uk company parents in 45 developed and developing countries we find that offshore location choices greatly depend on these services characteristics and in sometimes surprising ways and draw implications from our findings for international business theory policy and practice

can monetary policy influence long term interest rates it depends i introduction a stated goal of u s monetary policy is to maintain full employment in the u s economy 1 to do so however means the federal reserve must be capable of stabilizing aggregate demand particularly the historically volatile category of investment spending as this form of spending is highly sensitive to long term interest rates one implication of the full employment goal for u s monetary policy is that the federal reserve should be able to influence long term interest rates an important question then is whether u s monetary policy actually has any meaningful influence over long term interest rates a number of studies in recent years have examined this question but have come to different conclusions some studies show monetary policy has a sizeable and statistically significant effect on long term interest rates whereas others show the opposite the uncertainty created by this lack of consensus makes it difficult for the federal reserve to determine its impact on long term interest rates it is our objective in this paper to shed new empirical light on this murky relationship between monetary policy and long term interest rates we do so by looking at monetary policy innovations to the monetary base in an estimated vector autoregression var to see how monetary policy shocks impact the entire term structure of u s treasury interest rates 2 other studies that have used vars to examine this relationship have relied on innovations to the federal funds rate as their measure of monetary policy shocks berument and froyen 2006 berument and froyen 2009 edelberg and marshall 1996 evans and marshall 1998 this approach has become problematic as the federal funds rate has grown to be more predictable in recent times and thus less capable of generating monetary policy surprises in estimated vars our approach does not have this problem our study also has richer results than found in previous studies because we identify shocks to the money multiplier and real money demand in addition to the policy shock to the monetary base this allows us to examine the effect of all three monetary shocks on long term interest rates a final improvement that our study brings to this literature is that it uses long run identifying restrictions previous studies rely on short run contemporaneous restrictions that constrain the short run dynamics of the var our long run restrictions avoid this issue while at the same time imposing long run monetary neutrality on the monetary shocks for these reasons our study provides a fresh take on the relationship between monetary policy and long term interest rates using this approach we find that contrary to what the previous var studies show the federal reserve can meaningfully influence the entire term structure of interest rates we also find however that federal reserve can do so only if it maintains its inflation fighting credibility the rest of the paper proceeds as follows first we review previous findings on this issue and use them to help motivate our study second we outline the empirical methods we use to estimate the relationship between monetary policy shocks and long term interest rates third we discuss our data and construction of endogenous variables fourth we report our findings and examine how the results change over sub periods fifth the robustness of our findings are checked by examining how important the faust and leeper 1997 critique is to our identification strategy finally we conclude by discussing the implications for monetary policy ii previous findings motivating this study over the past decade there has been a spate of studies on the relationship between monetary policy and long term interest rates the methods and findings from this empirical research can be grouped into two categories on one hand there have been a number of studies using single equation models with daily data that find unanticipated changes in the federal funds rate can have a statistically significant and sizeable effect on long term interest rates beechey 2007 berument and froyen 2009 cochrane and piazzesi 2002 ellingsten and soderstrom 2003 ellingsen soderstrom and masseng 2004 gurkaynak sack and swanson 2005 kuttner 2001 poole et al

globalisation of knowledge production and regional innovation policy supporting specialized hubs in the bangalore software industry abstract this paper is concerned with the changing role of regional innovation systems and regional policies in supporting the transition of indigenous firms in developing countries from competing on low costs towards becoming knowledge providers in global value chains special attention is paid to policies supporting the emergence and development of the regional innovation system in this transition process regional innovation systems in developing countries have very recently started to be conceptualised as specialized hubs in global innovation and production networks asheim b coenen l vang lauridsen j 2007 face to face buzz and knowledge bases socio spatial implications for learning innovation and innovation policy environment and planning c government and policy 25 5 655 670 chaminade c vang j 2006a innovation policy for small and medium size smes in asia an innovation systems perspective in yeung h ed handbook of research on asian business edward elgar cheltenham maggi c 2007 the salmon farming and processing cluster in southern chile in pietrobello c rabellotti r eds upgrading and governance in clusters and value chains in latin america harvard university press a specialized hub refers to a node in a global value chain that mainly undertakes one or a few of the activities required for the production and development of a given good or service or serves a particular segment of the global market in global value chains firms in developing countries have traditionally been responsible for the lowest added value activities however a few emerging regional innovation systems in developing countries are beginning to challenge this scenario by rapidly upgrading in the value chain there is however still only a poorly developed understanding of how the system of innovation emerges and evolves to support this transition process and what the role of regional innovation policy is in building the regional conditions that support indigenous small and medium size enterprises smes in this transition process this paper aims at reducing this omission by analyzing the co evolution of the strategies of indigenous smes and the regional innovation system of bangalore india

the silicon valley hsinchu connection technical communities and industrial upgrading silicon valley in california and the hsinchu taipei region of taiwan are among the most frequently cited miracles of industrialization in the information technology era since the region s transformation from an agricultural valley into the birthplace of the semiconductor industry in the 1950s silicon valley firms have pioneered a wide range of technology related industries the regional economy has adapted flexibly to fast changing markets and local producers continue to define the state of the art in successive generations of technology from semiconductor equipment personal and handheld computers and networking hardware and software to biotechnology multimedia software and internet related infrastructure and services taiwan s technology achievements are more recent but no less impressive the taipei area which served as a source of low cost labor for consumer electronics production as late as the 1970s is known today for the speed and flexibility of its personal computer manufacturers these firms dominate the markets for a large and growing range of computer rela ted products from motherboards and monitors to optical scanners and power supplies meanwhile the hsinchu science based industrial park established in 1980 is now a state of the art manufacturer of semiconductor s on par with the world market leaders in the us and japan taiwan s total information technology output is now greater than that of larger nations like korea in fact it is larger than the output of germany and france combined anderson 1998

money and economic activity revisited abstract recent literature has concluded that money no longer plays a fundamental role in determining us economic activity especially when post 1982 data are included in the analysis we re examine the issue using annual and quarterly data sets ranging back to the civil war cointegration tests show that an equilibrium relationship holds between money and income in all data samples of 35 years or longer but frequently fails to hold for many shorter samples however when the normal monetary lags are explicitly imposed a cointegrating relationship is frequently captured even in quite short samples examining the issue in a standard five variable var model we find that money is the most important variable in explaining real output for the full 1874 1993 as well as 1952 1993 periods even allowing for interest rate effects finally using monthly data over the troublesome 1983 1994 sample we show that when appropriate adjustments are made to capture recent structural changes such as the growing importance of the international economy on us output money still granger causes economic activity

money income and dynamic lag patterns in traditional vector autoregression var models a fixed lag length is imposed on all variables and across all observation periods this practice however is prone to potential model misspecifications more specifically underparameterization due to too short lag lengths results in estimation bias while overparameterization due to too long lag lengths results in a loss of degrees of freedom and thus estimation efficiency the significance of such problems can be exemplified by recent results of money income causality tests based on conventional var methodology the empirical relationship between money and income during the postwar period has long been found fragile by litterman and weiss 7 and sims 8 recently friedman and kuttner 3 argued that since the late 1970s monetary aggregates have ceased to predict real income in a four lag var system including an interest rate variable further by extending the sample period from 1985 to 1988 they 4 weakened stock and watson s 9 statistical support for money income causality the robustness of friedman and kuttner s findings however has been questioned for example thoma 10 documented subsample instability in causality statistics particularly in the 1980s becketti and morris 1 argued for longer lag lengths in the vars webb 11 further suggested that two lag lengths one for the dependent variable and another for all independent variables be considered in each equation the objective of this paper is to provide some explanations for these puzzles first the marginal significance levels or p values of money income granger causality tests are shown to vary remarkably over subsamples as well as different lag specifications second as an extension to the standard var estimation strategy a lag selection procedure is applied to determine the optimal lag structure that can vary across both variables and observation periods the empirical results suggest that previous findings on the collapse of the money income causal relationship is attributable to lag length misspecification especially for money the rest of the paper is organized as follows the next section discusses temporal instability in causality test statistics section iii outlines a new lag selection method and section iv presents

monetary policy lessons of recent inflation and disinflation by 1975 most economists agreed that the money demand function in the united states was reasonably stable and could serve as a reliable basis for the formulation of monetary policy those suspicious of monetarism were on the defensive in the light of the apparently inexorable increase of m1 velocity of about three percent per year with deviations of only a few tenths of a percent experience with rising money growth and rising inflation through 1980 only confirmed monetarist views as figure 1 shows all this had changed by 1986 with disinflation in the 1980s m1 velocity departed convincingly from its 1953 79 trend the money demand function seems to have fallen apart and is apparently not a reliable basis for monetary policy after all consequently the first major section following this introduction is devoted to the decline of velocity after 1981 and the demise of the standard money demand function some authors including i believe benjamin friedman conclude that this evidence leaves us so uncertain about the nature of money demand that policymakers cannot rely at all on any presumed money demand regularities in contrast my working hypothesis is that the money demand continues to be a stable function of relatively few variables but that the interest elasticity of money demand is substantially higher than previously thought others have sought money demand explanations in terms of regime shifts but that literature will not be discussed here events have not been kind to keynesian monetary policy positions either keynesians tend to concentrate on interest rates especially real interest rates as the best guide to the effects of monetary policy on the economy the real rate is discussed

the effects of interest rates on mortgage prepayments three main types of mortgages are fixed interest contracts which automatically fall due on the sale of a dwelling fixed rate loans which are assumable by a buyer and floating rate instruments when interest rates rise the fall in the economic value of these assets in savings and loan associations portfolios varies from one form of mortgage to another for either of the fixed interest rate contracts the cash flow from the mortgage is constant as long as it has not been prepaid if the interest rate rises the homeowner has a nominal capital gain since his loan is then at a below market interest rate he would therefore be less likely to prepay the fall in the savings and loans net worth arises from two factors 1 the interest rate differential for mortgages of a fixed duration and 2 the endogenous lengthening of the duration this paper is an attempt to measure the dependence of the duration of mortgages on the implicit unrealized capital gain of mortgage holders resulting from interest rate changes our estimate is based on a sample of 4 000 mortgages issued in california which were active in 1975 we follow their payment history from 1975 to 1982 using a proportional hazards model we estimate the percentage reduction in prepayment probability associated with interest rate changes our results indicate that for due on sale fixed interest rate mortgages a sudden increase in the interest rate from 10 to 15 percent would induce a 23 percent loss in the economic value of the mortgage if the mortgage were assumable this loss would be 28 percent correspondingly the 6 year average time to repayment of mortgages at a constant interest rate would be lengthened to nine years for due on sale mortgages and 13 1 2 years for assumable ones the definitive version is available at www blackwell synergy com this abstract was borrowed from another version of this item

liquidity vs wealth in household debt obligations evidence from housing policy in the great recession we exploit variation in mortgage modifications to disentangle the impact of reducing long term obligations with no change in short term payments wealth and reducing short term payments with no change in long term obligations liquidity using regression discontinuity and difference in differences research designs with administrative data measuring default and consumption we find that principal reductions that increase wealth without affecting liquidity have no effect while maturity extensions that increase only liquidity have large effects this suggests that liquidity drives default and consumption decisions for borrowers in our sample and that distressed debt restructurings can be redesigned with substantial gains to borrowers lenders and taxpayers

new concepts and trends in international r d organization abstract the globalization of markets the regionalization of technical and scientific expertise and the rapid change in technologies are forcing technology based companies to continuously adjust their r d organization our study of 33 companies reveals five different types of r d organization in multinational companies mnc we classified r d organizations according to the dispersion of r d activities and the degree of cooperation between individual r d units and identified the ethnocentric centralized the geocentric centralized the polycentric decentralized the r d hub and the integrated r d network organization five trends of organizational change among these forms of international r d organization were identified 1 stronger orientation of r d activities towards international markets and knowledge centers 2 establishment of tightly coordinated listening posts 3 strengthening and reinforcement of foreign r d sites 4 increased integration of decentralized r d units and 5 tighter coordination and recentralization of r d activities at fewer know how centers the search for the optimal balance between coordination and control is reflected by hybrid structures and intermediary configurations detected in some of the investigated companies since effective changes in behavioral orientation require considerable time successful quantum leaps in multinational r d organization are next to impossible

why are companies offshoring innovation the emerging global race for talent this paper empirically studies determinants of decision by companies to offshore innovation activities it uses survey data from the international offshoring research network project to estimate the impact of managerial intentionality past experience and environmental factors on the probability of offshoring innovation projects the results show that the emerging shortage of highly skilled science and engineering talent in the us and more generally the need to access qualified personnel are important explanatory factors for offshoring innovation decisions moreover contrary to drivers of many other functions labor arbitrage is less important than other forms of cost savings the paper concludes with a discussion of the changing dynamics underlying offshoring of innovation activities suggesting that companies are entering a global race for talent

congressional oversight committee influence on u s monetary policy revisited abstract grier 1991 shows that monetary policy is influenced by congress in that increases in the liberality of the senate banking committee leadership are significantly positively correlated with monetary base growth chopin cole and ellis 1996 claim that the house leadership statistically dominates the senate leadership for predicting money growth but that the direction of the effect is perverse a more liberal house leadership is associated with a lower rate of base growth in this paper i show that chopin cole and ellis s claims are unfounded properly measured both house and senate leadership have a significant positive effect on base growth over grier s 1991 original sample in later periods money growth regressions are not sufficiently stable to support hypothesis tests

securing access to lower cost talent globally the dynamics of active embedding and field structuration manning s sydow j and windeler a securing access to lower cost talent globally the dynamics of active embedding and field structuration regional studies this article examines how multinational corporations shape institutional conditions in emerging economies to secure access to high skilled yet lower cost science and engineering talent two in depth case studies of engineering offshoring projects of german automotive suppliers in romania and china illustrate how multinational corporations engage in active embedding by aligning local institutional conditions with global offshoring strategies and operational needs multinational corporations thereby contribute to the structuration of field relations and practices of sourcing knowledge intensive work from globally dispersed locations the findings stress the importance of institutional processes across geographic boundaries that regulate and are shaped by multinational corporation activities manning s sydow j and windeler a

the next wave of globalization relocating service provision to india summary services offshoring to india has grown dramatically in the last 10 years it is linked to the earlier expansion of indian software services exports but has its own dynamic and workforce although domestic firms were early entrants mncs are central actors already some work done in india resembles that done in developed countries to explain the dynamism and complexity of offshoring a taxonomy of market participants is presented offshoring by small entrepreneurial us firms is highlighted as an emerging phenomenon the conclusion argues that market entry by other developing countries is possible

how to promote clusters policy experiences from latin america abstract in this paper we propose to differentiate between three types of clusters when it comes to formulating cluster oriented policies in latin america survival clusters of micro and small scale enterprises owe their existence more to unfavorable macroeconomic conditions and less to entrepreneurial competence and dynamism their competitive potential is limited support measures should mainly aim at improving the conditions for survival since these clusters are important in creating employment opportunities the impetus should be to break through the low skills low investment vicious circle more advanced and differentiated mass producers have been flourishing in the import substitution era but are coming under enormous pressure with the transition to open economies in these clusters the main challenge is to create an environment that stimulates and supports learning innovation and constant upgrading clusters of transnational corporations are typically dominated by foreign firms not only at the final assembly stage but also in parts production these clusters often are showcases of best practice manufacturing this can be used to stimulate the upgrading of domestic firms notably by involving them in the supply chain of transnationals

the globalization of r d results of a survey of foreign affiliated r d laboratories in the usa abstract this paper examines the globalization of innovation and the phenomenon of foreign direct investment fdi in research and development to do so it draws from a survey of foreign affiliated r d laboratories in the united states while the literature on foreign direct investment has emphasized the role of markets in driving off shore investments the main conclusion of this research is that the globalization of innovation is driven in large measure by technology factors of particular importance is the objective of firms to secure access to scientific and technical human capital

a political model of monetary policy with application to the real fed funds rate abstract we construct an empirical model of u s monetary policy assuming that the federal reserve is an ordinary federal bureaucracy we use the real federal funds rate as our policy measure and show the existence of significant executive legislative and bureaucratic influence on the real rate of interest from 1961 to 1996 we find that presidential party is an adequate statistical measure of executive influence and that the voting scores of the senate banking committee leadership best represent legislative influence we argue that political changes cause systematic and predictable changes in monetary policy

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

creating a cluster while building a firm entrepreneurs and the formation of industrial clusters feldman m p francis j and bercovitz j 2005 creating a cluster while building a firm entrepreneurs and the formation of industrial clusters regional studies39 129 141 the objective of the paper is to provide a theoretical model of cluster development that is informed by an appreciative interpretation of case studies it argues that entrepreneurs are a critical element in the formation of clusters entrepreneurs are important actors in the development of clusters as complex adaptive systems where the external resources associated with clusters are developed over time entrepreneurs who adapt to both constructive crises and new opportunities create the factors and conditions that facilitate their business interests and in turn contribute to the development of external resources the paper examines the initial factors that influence the decision to become an entrepreneur and examine how external factors influence the formation and location of high technology clusters feldman m p francis j

efficient tests of long run causation in trivariate var processes with a rolling window study of the money income relationship this paper develops a simple sequential multiple horizon non causation test strategy for trivariate var models with one auxiliary variable we apply the test strategy to a rolling window study of money supply and real income with the price of oil the unemployment rate and the spread between the treasury bill and commercial paper rates as auxiliary processes ours is the first study to control simultaneously for common stochastic trends sensi tivity of causality tests to chosen sample period null hypothesis over rejection sequential test size bounds and the possibility of causal delays evidence sug gests highly significant direct or indirect causality from m1 to real income in particular through the unemployment rate and m2 once we control for cointe gration

why don t lenders renegotiate more home mortgages redefaults self cures and securitization we document the fact that servicers have been reluctant to renegotiate mortgages since the foreclosure crisis started in 2007 having performed payment reducing modifications on only about 3 percent of seriously delinquent loans we show that this reluctance does not result from securitization servicers renegotiate similarly small fractions of loans that they hold in their portfolios our results are robust to different definitions of renegotiation including the one most likely to be affected by securitization and to different definitions of delinquency our results are strongest in subsamples in which unobserved heterogeneity between portfolio and securitized loans is likely to be small and for subprime loans we use a theoretical model to show that redefault risk the possibility that a borrower will still default despite costly renegotiation and self cure risk the possibility that a seriously delinquent borrower will become current without renegotiation make renegotiation unattractive to investors

offshoring of r d looking abroad to improve innovation performance the offshoring of knowledge services has become a phenomenon of increasing importance for firms but many of its implications are yet to be discussed thoroughly this paper analyzes whether r d offshoring contributes to enhancing firms innovation capabilities specifically the study distinguishes between two governance models of offshoring captive offshoring and offshore outsourcing and two types of innovation outcomes product and process innovations we suggest that r d offshoring has different impacts depending on the innovation results and governance models considered the study empirically tests these relationships using the spanish technological innovation panel this survey contains information on a large sample of firms from diverse sectors for the period 2004 2007 the empirical findings allow us confirm our hypotheses and highlight the strategic importance of r d offshoring the empirical evidence reveals a positive relation between offshoring and innovation performance with a greater effect on product than on process innovations the results for different governance models show that captive offshoring has a greater effect on innovation outcomes than offshore outsourcing these findings lead us to conclude that firms that look overseas can benefit from location specific and specialization advantages to improve innovation performance

global delivery models the role of talent speed and time zones in the global outsourcing industry global delivery models gdms are transforming the global it and business process outsourcing industry gdms are a new form of client specific investment promoting service integration with clients by combining client proximity with time zone spread for 24 7 service operations we investigate antecedents and contingencies of setting up gdm structures based on comprehensive data we show that providers are likely to establish gdm location configurations when clients value access to globally distributed talent and speed of service delivery in particular when services are highly commoditized findings imply that coordination across time zones increasingly affects international operations in business to business and born global industries

should i default on my mortgage even if i can pay experimental evidence abstract we study strategic default in the laboratory i e in a controlled experiment subjects are initially endowed with a house and a mortgage we use neutral wording in the experiment and must decide at each period in which their mortgage is alive among three options making the mortgage payment selling the house or walking away from their house and defaulting on their mortgage at each point in time we can observe whether defaulters can afford to make the mortgage payment and thus directly compute the number of strategic defaulters subjects default in the right periods and quite fast learn what they should consume we find experimental support for the double trigger hypothesis individuals faced with low income and low house prices are more likely to default we observe that subjects default less than optimal and this decision is significantly affected by social norm concerns in the context of the experiment individuals under consume in the first periods of life they are cautious when indebted both introducing a 50 probability of recourse and a responsible homeowner reward are very effective in preventing default in the lab especially by individuals receiving a bad shock to income when house prices are low

is bank supervision central to central banking whether central banks should play an active role in bank supervision and regulation is being debated both in the united states and abroad while the bank of england has recently been stripped of its supervisory responsibilities and several proposals in the united states have advocated removing bank supervision from the federal reserve system other countries are considering enhancing central bank involvement in this area many of the arguments for and against these proposals hinge on the effect this change would have on the ability of the central bank to conduct monetary policy we find that confidential supervisory information on bank ratings significantly improves

the effects of real and nominal uncertainty on inflation and output growth some garch m evidence in this paper we use garch m methods to test four hypotheses about the effects of real and nominal uncertainty on average inflation and output growth in the united states from 1948 to 1996 we find no evidence that higher inflation uncertainty or higher output growth uncertainty raises the average inflation rate we also find no support for the idea that more risky output growth is associated with a higher average real growth rate our key result is that in a variety of models and sample periods inflation uncertainty significantly lowers real output growth copyright 2000 john wiley sons ltd

the drivers of foreign direct investment into research and development an empirical investigation this paper examines the determinants of foreign direct investment fdi in research and development laboratories by 32 multinational enterprises in the pharmaceutical and electronics industries the paper applies a dichotomous set of motives for fdi results from an econometric analysis of 136 laboratory investments show that relative market size and relative strength of a country s science base determine whether fdi in research and development is carried out in order to exploit existing firm specific advantages or in order to build up new firm specific advantages this holds true in similar form for japanese european and u s firms and across the two industries

mortgage modification and strategic behavior evidence from a legal settlement with countrywide abstract we investigate whether homeowners respond strategically to news of mortgage modification programs we exploit plausibly exogenous variation in modification policy induced by settlement of us state government lawsuits against countrywide financial corporation which agreed to offer modifications to seriously delinquent borrowers using a difference in differences framework we find that countrywide s monthly delinquency rate increased more than 0 54 percentage points a 10 percent relative increase immediately after the settlement s announcement the estimated increase in default rates is largest among borrowers least likely to default otherwise these results suggest that strategic behavior should be an important consideration in designing mortgage modification programs jel d14 g21 k22 r31

negative equity and foreclosure theory and evidence abstract recent declines in housing prices have focused attention on the relationship between negative housing equity and mortgage default theory implies that negative equity is a necessary condition for default but not a sufficient one this often misunderstood result is clearly illustrated in a dataset of massachusetts homeowners during the early 1990s fewer than 10 percent of borrowers likely to have had negative equity at the end of 1991 experienced a foreclosure during the following three years an econometric model of default estimated on two decades of massachusetts housing data also predicts low default rates for current negative equity borrowers we develop a simple theoretical model to interpret these empirical findings and to assess potential foreclosure reduction policies our results imply that lenders and policymakers face an information problem in trying to help borrowers with negative equity because it is hard to determine which owners really need help in order to stay in their homes

house price beliefs and mortgage leverage choice we study the relationship between homebuyers beliefs about future house price changes and their mortgage leverage choices whether more pessimistic homebuyers choose higher or lower leverage depends on their willingness and ability to reduce the size of their housing market investments when households primarily maximize the levered return of their property investments more pessimistic homebuyers reduce their leverage to purchase smaller houses on the other hand when considerations such as family size pin down the desired property size pessimistic homebuyers reduce their financial exposure to the housing market by making smaller downpayments to buy similarly sized homes to determine which scenario better describes the data we investigate the cross sectional relationship between house price beliefs and mortgage leverage choices in the u s housing market we use plausibly exogenous variation in house price beliefs to show that more pessimistic homebuyers make smaller downpayments and choose higher leverage in particular in states where default costs are relatively low as well as during periods when house prices are expected to fall on average our results highlight the important role of heterogeneous beliefs in explaining households financial decisions

the effects of money growth on inflation and interest rates across spectral frequency bands band spectral regression techniques are used to identify the frequency bands that are most important in the relationships between money growth and inflation and between money growth and the nominal interest rate the results show that cycles in the growth rate of m1 from one to two years long produce higher frequency cycles in inflation and two distinct sets of higher frequency cycles in changes in the nominal interest rate the results support models where predictable changes in money growth produce liquidity and anticipated inflation effects on nominal interest rates copyright 1994 by ohio state university press

nominal loss aversion housing equity constraints and household mobility evidence from the united states abstract this paper exploits the recent variation in us house prices to examine the effect of equity constraints and nominal loss aversion on household mobility detailed data from the 1985 1996 national longitudinal survey of youth nlsy79 were matched with house price data from 149 metropolitan areas to estimate instrumental variables linear probability and semi parametric proportional hazard models of intra metropolitan mobility household mobility is significantly influenced by nominal loss aversion there is little evidence that low equity because of fallen house prices constrains mobility

why are different services outsourced to different countries the tradability revolution in services has led to a dramatic expansion of offshore outsourcing of services allowing firms to take advantage of lower production costs in foreign countries however production costs alone cannot explain the location determinants of offshore outsourcing of services in this paper we argue that minimizing transaction costs is also an important determinant of the location of offshore outsourcing of services we empirically analyze characteristics of services and characteristics of foreign countries that may impact on transaction costs in an outsourcing relationship and hence determine where services will be outsourced offshore we derive measures of service characteristics routineness complexity and interactiveness based on the tasks required to provide them further we posit that there are interaction effects between service and country characteristics using bureau of economic analysis data on us service outsourcing across 11 types of services to 31 countries between 1992 and 2005 we find that 1 services that are more routine less complex or less interactive are outsourced more to foreign countries 2 services are outsourced more to countries with higher institutional quality and greater cultural proximity 3 non routine complex and interactive services are outsourced relatively more to countries with a better institutional quality