efficient and durable decision rules with incomplete information we compare six concepts of efficiency for economies with incomplete information depending on the stage at which individuals welfare is evaluated and on whether incentive constraints are recognized an example is shown in which an incentive efficient decision rule may be unanimously rejected by the individuals in the economy we define durable decision rules which can resist such unanimous rejection and show that efficient durable decision rules exist

monetary policy and stock market dynamics across monetary regimes abstract this paper examines the dynamic linkages between monetary policy and the stock market during the three distinct monetary regimes of burns volcker and greenspan since the 1970s some major findings are the following first in the 1990s it appears that there was a disconnection between federal reserve actions via the federal funds rate and responses by the stock market second the impact of inflation on the stock market did not surface as significant in the later parts of 1980s and the 1990s and third significant asymmetric effects of monetary policy on the stock markets were observed throughout each monetary regime but these were more pronounced during bear markets than bull markets these results suggest that there was no consistent dynamic relationship between monetary policy and the stock market and that the nature of such dynamics was different in each of the three monetary regimes

discount rate changes stock market returns volatility and trading volume evidence from intraday data and implications for market efficiency we examine the eaect of discount rate changes on stock market returns volatility and trading volume using intraday data equity returns generally respond negatively and significantly to the unexpected announcements however the eaect of expected changes on equity returns is insignificant furthermore our results indicate that equity prices respond to announcements within the trading period hour after the information release an indication of a return reversal is too small to cover the full transaction costs unexpected discount rate changes also contribute to higher market volatility although the volatility is short lived similarly unexpected changes in discount rates induce larger trading volume while expected changes do not abnormal trading volume occurs only in period t our results also support the notion that unexpected changes in the discount rates impact market returns irrespective of the federal reserve operating procedures 1999 elsevier science b v all rights reserved

mechanism design with incomplete information a solution to the implementation problem the main result of this paper is that the multiple equilibrium problem in mechanism design can be avoided in private value models if agents do not use weakly dominated strategies in equilibrium we show that in such settings any incentive compatible allocation can be made the unique equilibrium outcome to a mechanism we derive a general necessary condition for unique implementation which implies that the positive result for private value models applies with considerably less generality to common value settings and to situations in which an agent s information does not index the agent s preferences

the impact of fomc statements on the volatility of asset prices this article examines the impact of federal open market committee fomc statements on asset prices statements are found to have a much more pronounced impact on the volatility of asset prices than interest rate surprises they influence primarily stock returns intermediate and long term yields whereas short term rates are driven both by statements and by interest rate surprises we also find that the regime shift of may 1999 has improved the effectiveness of monetary policy as reflected in an overall reduction in market volatility during the most recent regime in addition markets are equally well prepared for the upcoming rate decision in both regimes but the process of adjustment depends on whether a statement was issued in the old regime or not when a statement is issued price adjustments are very similar across both periods whereas if no statement is issued then the rate of adjustment towards the new value is more gradual and occurs throughout the entire intermeeting period

economic news exchange rates and interest rates the paper esamines the post october 1979 response of exchange rates and interest rates to the new information contained in the first announcement of fifteen us macroeconomic series illarkets respond primarily to monetary news but also to news about the trade deficit domestic inflation and variables that reflect the state of the business cycle for all fifteen macroeconomic variables an increase decrease in interest rates is accompanied by an appreciation depreciation of the dollar which is consistent with models that stress price rigidity and absence of purchasing power parity the effect of economic news on asset prices has received increasing attention in the economic literature because an outcome of the efficient markets rational expectations hypothesis is that flesible asset prices change the moment new information about future fundamentals arrives in the market in the exchange rate literature the role of news has gained importance because structural models have failed to predict most of the variation in exchange rates during the 1970s see imeese and rogoff 1983 researchers were naturally led to investigate the types of news that make exchange rates so volatile and to utilize news in order to test which model of exchange rate determination is consistent with the floating eschange rate experience notable studies are those of dornbusch 1980 frenkel 1981 edwards 1982a b 1983 copeland 1984 and rose 1984 in this paper i also examine the effects of macroeconomic news on eschange rates but i adopt a different more direct strategy one that complements previous work avoids some of its shortcomings and promises interesting conclusions i examine the instantaneous response of exchange rates the moment a piece of economic news hits the market if one can isolate the exact time during a business day when news arrives it is straightforward to examine the response of exchange rates because financial data are continuously available the advantages of the present methodology are many first it is possible to identify the exact types of economic news and how they affect exchange rates second the simultaneity bias which plagues the previous literature on exchange rates and news is not present here the independent variables that represent news can be interpreted as causal the paper was presented at the 1985 meeting ofthe american economic association the author wishes to thank sebastian edwards r w hafer nicholas karamouzis andrew rose and two anonymous referees for helpful comments kim rupert of the money market services for providing the survey data soo kounne for able research assistance and barnard college for research support

macroannouncements bond auctions and rating actions in the european government bond spreads this paper investigates the impact of macroannouncements government bond auctions and rating actions on the 10 year government bond spreads for belgium france italy the netherlands spain with respect to germany using a unique tick by tick dataset over 1 02 2009 05 31 2012 we identify the impact of the three drivers via jump and cojump detection procedures disentangling the pre from the post announcement effects real economy and forward looking news releases from us and euro area country specific spanish and german macroannouncements and auctions hold in distressed countries such italy and spain have a statistically and economically significant effect no role is played by rating actions

macro economy stock market and oil prices do meaningful relationships exist among their cyclical fluctuations this paper examines the relationship among consumer price index industrial production stock market and oil prices in greece initially we use a unified statistical framework cointegration and vecm to study the data in levels we then employ a multivariate var model to examine the relationship among the cyclical components of our series the period of the study is from 1996 1 to 2008 6 findings suggest that oil prices and the stock market exercise a positive effect on the greek cpi in the long run cyclical components analysis suggests that oil prices exercise significant negative influence to the stock market in addition oil prices are negatively influencing cpi at a significant level however we find no effect of oil prices on industrial production and cpi finally no relationship can be documented between the industrial production and stock market for the greek market the findings of this study are of particular interest and importance to policy makers financial managers financial analysts and investors dealing with the greek economy and the greek stock market

monetary conditions and international investing we examine the relationship between monetary conditions and global stock returns previous studies established that u s stock returns during expansive u s monetary periods are significantly higher than returns during restrictive periods we found that this pattern prevails in non u s markets furthermore the pattern exists relative to both local and u s monetary conditions by examining several investment strategies we show that investors could have improved portfolio performance in the period studied by using both u s and local monetary conditions to guide their portfolio allocations using monetary conditions to determine portfolio composition would have been consistently beneficial throughout the past 30 years

stock prices money supply and interest rates the question of causality the purpose of this study is to examine the statistical relationship between the supply of money and stock price levels and between the level of interest rates and stock prices the current literature in financial economics offers differing opininon on each of these relationship this research addresses a significant aspect of this debate by examining the direction of causality between the money supply stock prices and interest rates using granger sims test for determining unidirectional causality we find that the relationship between the money supply and stock prices is characterized by a feedback system with money supply causing some of the observed variations in the stock price levels and vice versa with respect to the relationship between stock prices and interest rates the results are not as conclusive in this instance the causality seems to be mostly running from interest rates to stock prices and not the other way around

the fed and short term rates is it open market operations open mouth operations or interest rate smoothing abstract it is widely believed that the fed controls the federal funds rate by altering the degree of pressure in the reserve market through open market operations when it changes its target for the funds rate recently however several analysts have suggested that the fed need not conduct open market operations to change the funds rate rather they argue it is sufficient that the fed indicate its desire for the funds rate this paper notes that there is yet a third alternative the interest rate smoothing hypothesis that suggests that the fed does not move rates per se but rather smooths the transition of rates to the new equilibrium required by economic shocks this paper tests the open market and open mouth alternatives using a methodology first used by cook and hahn journal of monetary economics 1989a 331 finding no evidence that either open market operations or open mouth operations can account for the close relationship between the funds rate and the funds rate target a variety of evidence consistent with the interest rate smoothing hypothesis is considered the results suggest that many changes in the fed s funds rate target are an endogenous response to economic events and suggest that an alternative way to identify exogenous changes in policy is to identify exogenous changes in the fed s funds rate target

implementation in differential information economies abstract we consider the problem of implementation of social choice correspondences in differential information economies we provide necessary conditions for implementation and slightly stronger conditions which are sufficient to guarantee implementation

the market valuation effects of reserve regulation abstract we demonstrate that the financial market s reaction to changes in reserve regulation implies that reserve requirements are an excise tax on banking activities changes in reserve requirements do not influence yields on treasury securities or returns on broad based portfolios of nonfinancial stocks and thus do not impound new information about monetary policy moreover changes in reserve requirements have an impact on nonbank financial firms that is opposite in sign to that of banks this suggests that reserve requirements shift the locus of some financial activities from the banking sector to the nonbank sector of the financial system

the international impact of federal reserve bank discount rate changes abstract previous studies have found that american equity values move inversely to the direction of announced discount rate changes by the federal reserve bank in this study of the return behavior of a simple of american depository receipts adrs to announcements of discount rate changes we find no evidence of such a relationship indeed adrs exhibit no significant response to either rate increases or decreases our results hold for both market realignment and policy motivated changes these findings suggest that adrs can provide diversification to the american investor as international economies and monetary policies remain incompletely integrated

international market response to announcements of us macroeconomic data abstract this paper presents empirical evidence relating the announcement effects of us money supply and inflation cpi and ppi to eurocurrency interest rates and the foreign currency markets both spot and forward for seven industrial countries over the period 1977 1982 the results indicate that unanticipated components of announced changes in money supply have a significant positive effect on eurocurrency interest rates and a negative effect implying dollar appreciation on the spot exchange rates unanticipated changes in ppi have a positive significant effect on interest rates a small surprisingly negative impact on spot exchange rates and a positive effect on gold prices the cpi has no effect on either market

continuous and feasible implementation of rational expectations lindahl allocations abstract in this paper we consider bayesian implementation of rational expectations lindahl allocations for economic environments with public goods when agents are incompletely informed about environments we construct a continuous and feasible mechanism whose bayesian equilibrium allocations coincide with rational expectations lindahl allocations we not only allow the types of individuals to be unknown but also allow both the preferences and the initial endowments to be unknown to the designer in addition we allow some types of boundary equilibrium allocations and a continuous information structure journal of economic literatureclassification number c72 d71 d82 h41

deficits money and inflation abstract this paper examines the interrelationships between monetary and fiscal policy specifically it seeks to determine whether government budget deficits influence monetary growth using a money supply model originally developed by barro we find that deficits have had a significant impact on the growth of the u s money supply throughout most of the period since 1961 such a relationship need not always hold it depends on whether government deficits place upward pressure on interest rates and whether the central bank monetizes the debt in an effort to stabilize interest rates

the response of short term interest rates to weekly money announcements each friday at 4 10 p m est the federal reserve announces its estimate of the narrowly defined money stock for the statement week ending nine days previously these money announcements have become one of the main events in financial markcts if for no other reason than the fact that significant movements in interest rates have been associated with large unanticipated changes in the money stock moreover since the late 1970s interest rate fluctuations in response to money stock announcements have dramatically increased over the 1l 2 hour intervals spanning the weekly announcements for example the variance of the change in the threemonth treasury bill yield in the three years since october 1979 is more than thirty times larger than that of the previous two year period l two factors may account for a large portion of the increased volatility of shortterm interest rates first on october 6 1979 the federal reserve adopted a reserve aggregate approach to monetary control replacing a procedure that emphasized stability of short term yields second despite the greater emphasis placed on monetary control the variance of weekly announced changes in the money stock has risen by about 70 percent since late 1979 in turn if greater volatility of announced changes makes future changes more difficult to predict the volatility of unanticipated weekly changes in money would have also increased 2 thus if financial markets are efficient and if weekly money announcements contain relevant information larger unanticipated changes in money may have caused larger fluctuations in interest rates

monthly price premiums and discounts between steer calves and yearlings distributed lags are used to estimate monthly prices and price premiums and discounts between steer calves and steer yearlings the statistical results show that premiums and discounts are not highly seasonal but are affected by expected changes in fed slaughter prices and cost of gain in the feedlot the effects of these variables are sensitive to time thus the latter should be taken into account for future marketing decisions also price flexibility coefficients indicate that profitability risk in cattle finishing is shifted more to price weight differences of cattle placed on feed than to changes in the individual prices themselves

the effect of macroeconomic news on stock returns new evidence from newspaper coverage abstract previous literature has produced weak evidence to support the hypothesis that real economic news affects stock returns this is in part attributed to the difficulty of measuring how investors interpret macroeconomic announcements in different economic environments in this paper we choose a different approach of measuring macroeconomic news to better estimate its effect on stock returns since newspaper stories provide an interpretation of the statistical releases we choose newspaper stories as our measure of news our findings indicate that news about gdp and unemployment does affect stock returns

implementation in economic environments with incomplete information the use of multi stage games abstract this paper shows that in economic environments with incomplete information incentive compatibility and a preference reversal condition are sufficient for implementation in sequential equilibrium journal of economic literature classification numbers c72 d71 d82

nash implementation using undominated strategies we study the problem of implementing social choice correspondences using the concept of undominated nash equilibrium i e nash equilibrium in which no one uses a weakly dominated strategy we show that this mild refinement of nash equilibrium has a dramatic impact on the set of implementable correspondences our main result is that if there are at least three agents in the society then any correspondence which satisfies the usual no veto power condition is implementable unless some agents are completely indifferent over all possible outcomes many common welfare criteria such as the pareto correspondence and several familiar voting rules such as majority and plurality rules satisfy our conditions this possibility result stands in sharp contrast to the more restrictive findings with implementation in either nash equilibrium or subgame perfect equilibrium we present several examples to illustrate the difference between undominated nash implementation and implementation with alternative solution concepts

a rational distributed lag model of quarterly live cattle prices quarterly u s feeder cattle and fed cattle prices were estimated within a rational distributed lag framework utilizing nonstochastic difference equations to minimize problems with specification errors in the disturbance structure the behavior of certain input and output variables in the beef market explained the price variation in each reduced form equation the results revealed dynamic stability with a geometric rational lag structure describing fed cattle prices and a polynomial rational lag structure characterizing feeder cattle prices these dynamics were found to be better than both static serial correlation and purely autoregressive specifications

effects of changes in the discount rate on the foreign exchange value of the dollar 1973 to 1978 this paper attempts to analyze the effects of changes in the federal reserve s discount rate on the dollar s foreign exchange value if a discount rate increase were to signal a subsequent general increase in market interest rates one would expect u s dollar denominated assets to become relatively more attractive and the ensuing increased demand for dollar assets to tend to raise the dollar s exchange value the reverse would be true for discount rate decreases however in recent years the federal reserve s policy of moving the discount rate with a lag behind the federal funds rate means that market participants generally have sufficient information to anticipate changes in the discount rate when this is the case announcement effectsimmediate and discernible market responses to discount rate changes do not occur under special circumstances in 1978 however announcement effects could and did occur by increasing the discount rate when the federal funds discount rate differential was around normal levels and by increasing the discount rate by a larger amount than the market anticipated the federal reserve used the discount rate as a signal to market participants that it would use other operating instruments to bring about changes in market interest rates and the monetary base in their 1977 article raymond e lombra and raymond g torto ran a number of econometric tests for discount rate exogeneity on monthly data from january 1968 to may 1974 they concluded that discount rate movements were not independent of the spread between the discount rate and the federal funds rate given rational expectations therefore changes in the discount rate could not generate announcement effects lombra and torto 1977 this paper updates the work of lombra and torto and then attempts to test directly

the reaction of stock prices to unanticipated changes in money a note much of the past work on the money stock market relationship centered on the question of whether money is a leading indicator of stock prices studies by sprinkel 22 homa and jaffee 10 and hamburger and kochin 8 supported the view that past increases in money lead to increases in equity prices the implication of this work was that investors could earn above normal proflts by using a trading strategy based on the observed behavior of the money stock this contradicts the efficient markets hypothesis which asserts that current asset prices reflect all available information so that no such trading strategy can exist subsequent research by cooper 3 pesando 17 rozeff 21 and rogalski and vinso 19 has shown that past money changes do not contain predictive information on stock prices upholding the efficient markets view this paper investigates whether the response of common stock prices to weekly money announcements is consistent with the efflcient markets hypothesis unlike the above research therefore the focus is on the very short run response of stock prices to both anticipated and unanticipated announced changes in money recent work by berkman 1 grossman 7 urich and wachtel 25 and roley 20 indicates that short term interest rates respond only to the unexpected component of the announcement with short term rates rising when the announced change in money exceeds the expected change berkman also examined the reaction of stock prices finding that an unanticipated increase in the money supply depressed share prices lynge 13 found that positive money announcements lowered stock prices but since he did not distinguish expected from unexpected money growth his results do not bear directly on the efficient markets issue in investigating the response of stock prices to weekly money announcements survey data on market participants forecasts of the announced weekly change

stock prices and economic news this paper examines the daily response of stock prices to announcements about the money supply inflation real economic activity and the discountrate except for the discount rate survey data on market participants expectations of these announcements are used to identify the unexpected component of the announcements in order to test the efficient markets hypothesis that only the unexpected part of any announcement the surprise moves stock prices the empirical results support this hypothesis and indicate further that surprises related to monetary policy significantly affect stock prices there is only limited evidence of an impact from inflation surprises and no evidence of an impact from real activity surprises on the announcement days there is also only weak evidence of stock price responses to surprises beyond the announcement day this abstract was borrowed from another version of this item

robust implementation in direct mechanisms a social choice function is robustly implementable if there is a mechanism under which the process of iteratively eliminating strictly dominated messages lead to outcomes that agree with the social choice function for all beliefs at every type profile in an interdependent value environment with single crossing preferences we identify a contraction property on the preferences which together with strict ex post incentive compatibility is sufficient to guarantee robust implementation in the direct mechanism strict ex post incentive compatibility and the contraction property are also necessary for robust implementation in any mechanism including indirect ones the contraction property requires that the interdependence is not too high in a linear signal model the contraction property is equivalent to an interdependence matrix having all eigenvalues smaller than one

why do t bill rates react to discount rate changes a number of alternative explanations for the response of t bill rates to discount rate changes have been offered in the literature this paper investigates cook and hahn s 1988 hypothesis that discount rate changes signal a change in the fed s federal funds rate target which in turn induce changes in t bill rates after showing that the evidence that theyt claim supports their view cannot be used to differentiate their hypothesis from equally plausible alternatives we show that a valid alternative test fails to provide support for their view and that discount rate changes do not appear to signal changes in the target for the funds rate copyright 1994 by ohio state university press

response of hourly stock prices and trading volume to economic news this paper examines hourly stock returns and trading volume response to announcements about the money supply consumer price index cpi producer price index industrial production and the unemployment rate the empirical results indicate that surprises in announcements about money supply and cpi are significantly associated with stock price changes the announcements of the other three variables do not affect stock prices significantly trading volume is not affected by any of the five economic variable announcements indicating that market participants do not differ substanti ally in the interpretations of the effects of announcements the spee d of adjustment analysis indicates that the effect of information on stock prices is reflected in a short period of one hour or so copyright 1988 by the university of chicago

regulating an oligopoly with unknown costs abstract we examine the problem of a planner who is regulating an oligopoly with unknown costs we provide a complete characterization of the optimal mechanism which takes the following simple form firm s which report low costs produce together the first best output corresponding to this low cost and firm s which report high costs produce nothing when all firms report high costs only the ex ante least efficient firm produces the entire output and all the other firms produce nothing we show that under mild conditions as the number of firms increases the planner attains the same welfare level as if he had complete information of low cost

the impact of discount rate changes on market interest rates evidence from three european countries and japan abstract this paper examines the impact of official discount rate odr changes on market interest rates of four countries germany france japan and the uk during the period from 1980 through 1997 the overall results indicate that short term rates are more responsive than long term rates for all countries the magnitude of the changes is country specific market rate responses are lower for germany and japan which have fewer changes in odr these results are consistent with expectations that there is less uncertainty under such regimes consistent with the pace of regulatory reforms the results of odr changes are strongest in uk and weakest in japan when monetary policy is changed or reversed interest rate responses are shown to be larger for countries with frequent changes in discount rates

commodity own rates real interest rates and money supply announcements abstract this paper develops a measure of the real interest rate that is based on commodity own rates the rate at which one can contract to exchange units of a commodity today for units of the commodity in the future we use this measure to study the impact of money supply announcements on the real interest rate we find that money shocks have little effect on one and three month real interest rates however there is a strong positive relation between money shocks and six and twelve month real interest rates

asset returns discount rate changes and market efficiency the primary purpose of this paper is to reconcile the previous findings of discount rate endogeneity with the presence of discount rate announcement effects in securities markets the crux of this reconciliation is the distinction between technical discount rate changes that are endogenous and nontechnical changes which contain some informative policy implications in essence we attempt to separate expected discount rate changes from unexpected changes or equivalently the expected component of discount rate changes from the unexpected component if markets are efficient the former should have no announcement effects while the latter may be associated with an announcement effect accordingly the focus of the empirical analysis is on the interaction between discount rate exogeneity the specific monetary policy regime and accouncement effects in addition we examine whether the behavior of these markets in the postannouncement period is consistent with the rapid price adjustment implied by market efficiency

the credit channel of monetary policy transmission evidence from stock returns christophre georges this paper offers a novel test of the credit view of the monetary policy transmission mechanism using stock market returns we identify fed policy shocks using newspaper accounts and track daily stock prices immediately following the shocks if the credit channel is important then firms that are dependent on bank credit and internal funds should receive a relatively greater benefit loss from a fed easing tightening than firms with access to nonbank credit at favorable terms we identify ten policy shocks during the expansion of 1993 94 and the credit crunch period of the 1990 91 recession and find little evidence supportive of an operative credit channel jel e5 i introduction recently there has been renewed interest in the mechanism by which monetary policy innovations are transmitted into changes in aggregate output according to the traditional money view monetary policy influences market interest rates inducing changes in interest sensitive spending and consequently changes in output by assumption there is no distinction between financial assets and thus bank loans and internal funds are of no special interest in contrast the credit view e g bernanke and blinder 1988 assumes that bank loans are special due to information asymmetries some businesses are dependent on banks for loanable funds a withdrawal of reserves by the fed causes the supply of bank loans to fall and bank dependent businesses consequently reduce their spending a broader version of this view e g gertler and gilchrist 1993 bernanke and gertler 1995 claims that credit market imperfections contribute to the propagation of monetary policy shocks without working exclusively through the su pply of bank loans tight monetary policy may for example cause a deterioration of borrowers net worth thereby increasing external finance premia in either case this transmission mechanism operates through firms that are credit constrained in the sense that nonbank credit is an imperfect substitute for internal funds and bank loans empirical evidence on the transmission mechanism has been mixed see bernanke and blinder 1992 ramey 1993 kashyap et al 1993 gertler and gilchrist 1993 1994 christiano et al 1996 oliner and rudebusch 1995 1996 kashyap and stein 2000 two fundamental problems make direct tests of the credit view difficult the difficulty of identifying exogenous monetary policy shocks and the difficulty of identifying the relationship between these shocks and subsequent real activity this article offers a novel empirical test of the credit view using stock market returns if the credit channel is important then firms that are credit constrained should receive a relatively greater benefit loss from a fed easing tightening than firms with access to nonbank credit at favorable terms this relative benefit loss should be reflected in the behavior of stock prices immediately following news of the fed policy change we therefore identify changes in market expectations of fed policy calculate abnormal returns the deviations of the actual returns from the returns predicted by an asset pricing model for individual securities immediately following these innovations and test for systematic relationships between these abnormal returns and indicators of credit constraints at the firm level this approach is more indirect than others in the literature but has the advantage of mitigating the two identification problems noted above first the policy shocks that we use are changes in stock market expectations of fed policy we can identify these closely using daily accounts in the business press 1 second because the stock market reacts quickly to changes in expectations of future profitability we observe near contemporaneous responses of stock prices to policy shocks regardless of when in the future profits are expected to be altered

rational expectations information acquisition and competitive bidding most rational expectations market equilibrium models are not models of price formation and naive mechanisms leading to such equilibria can be severely manipulable in this paper a bidding model is developed which has the market like features that bidders act as price takers and that prices convey information higher equilibrium prices convey more favorable information about the quality of the objects being sold than do lower prices bidders can benefit from trading only if they have a transactions motive or if they have access to inside information apart from exceptional cases prices are not fully revealing a two stage model is developed in which bidders may acquire information at a cost before bidding and for which the equilibrium price is fully revealing resolving a well known paradox

a note on feasible implementations abstract this paper is concerned with the problem of individually feasible outcomes in decentralized allocation mechanisms we consider a well known mechanism which achieves efficient allocations in equilibrium this mechanism however may leave agents bankrupt if they fail to reach equilibrium it is shown that the bankruptcy problem can be avoided if a voting stage is added to the original mechanism

monetary announcements and stock prices in israel abstract responses of stock prices to monetary announcements in israel are examined only the unexpected part of monetary injection announcements are found to have a significant impact on stock prices unlike findings for the u s this impact is positive

efficient allocation with continuous quantities abstract the inefficiency of allocation mechanisms in the presence of bilateral asymmetric information is reconsidered in an environment with continuous quantities the result of myerson and satterthwaite is proved in this environment under the condition that zero trade is efficient if the highest cost seller or the lowest value buyer appears in addition if this condition fails there may exist mechanisms implementing efficient allocations the problem of hidden endowments is considered where any agent may be either a buyer or seller depending on the realization of the privately observed information in this environment it is often possible to arrange efficient trades ex ante asymmetries rather than interim asymmetries tend to prevent efficient allocations

stock prices and the effective exchange rate of the dollar the literature on the relation between stock prices and exchange rates is very poor and includes few studies that have argued that exchange rate changes do effect stock prices by relying on the portfolio approach to exchange rate determination it is argued that a change in stock prices could also have an impact on exchange rates i e there could be a two way relationship between exchange rates and stock prices granger concept of causality as well as cointegration technique are employed to support this conjecture the empirical results show that there is bidirectional causality between stock prices measured by s p 500 index and the effective exchange rate of the dollar at least in the short run the cointegration analysis reveals that there is no long run relationship between two variables

market response to the weekly money supply announcements in the 1970s the hypothesis that the weekly announcement of the money supply affects interest rates is examined the announcement effect is interpreted as a policy anticipation effect that is an unanticipated increase in the money supply leads to an increase in interest rates in anticipation of future tightening by the federal reserve estimates of this effect with proxies for the unanticipated change constructed from a survey of money supply forecasts and an arima model indicate that a financial markets respond very quickly to the announcement and b the response was largest when policymakers emphasized the importance of the monetary aggregates financial market participants are careful observers of the weekly money supply announcement and generally agree that the announcement often leads to changes in interest rates this occurs because the announcement leads market participants to revise their expectations both of future federal reserve policy actions and of future economic conditions in this paper we examine the response of yields on treasury bills to the announcement of the money supply and the extent to which that response has varied in the last ten years money supply announcements may affect market interest rates in three ways first actual expansion of the money supply leads to lower interest rates through a liquidity effect however rapid monetary growth which is not anticipated leads market participants to expect the federal reserve to counteract such growth in the future as a consequence there may be a policy anticipation effect which causes higher interest rates in anticipation of future tightening furthermore prolonged rapid monetary growth also creates inflation and inflationary expectations which lead to higher interest rates thus there may exist a third effect the inflationary expectations effect which also leads to higher interest rates our interest in this paper is in the immediate market response to the weekly announcement of the money supply which as we argue below is most likely to be a policy anticipation effect the policy anticipation effect is best described by example suppose that the announced change in the money supply exceeds that which was expected by

a nonparametric efficient public good decision mechanism undominated bayesian implementation abstract it is known that with incomplete information there are bayesian mechanisms that undertake public projects achieving ex post efficiency and budget balance however there are two shortcomings in these mechanisms first the mechanism designer is required to know the agents prior beliefs which is quite demanding second the mechanism may possess multiple equilibria including undesirable ones this paper presents a bayesian mechanism that is nonparametric in that the mechanism designer cannot incorporate any information other than that received from the agents moreover at all undominated bayesian equilibria of the mechanism the public project is undertaken efficiently and budget is balanced journal of economic literature classification numbers c72 d78 d82

syndicated euro credit sovereign risk assessments market efficiency and contagion effects this study investigates the informational efficiency of the syndicated euro credit market by analyzing the adjustment of spreads to news characterizing the state of sovereign borrowers creditworthiness in addition the potential for an interlinked crisis contagion effects between three major borrowing countries is examined that is contagion tests are conducted to see how news for one borrower affects the spreads charged to the others the evidence suggests that the euro credit pricing process has been informationally efficient however with respect to the contagion effects it was found that noncountry specific risk factors systematically influence country specific spreads

opening prices on the new york stock exchange abstract the prices of opening transactions on the new york stock exchange are determined quite differently from prices of subsequent transactions this paper tests the null hypothesis that opening prices are as representative of contemporaneous equilibrium stock values as subsequent intra day transactions prices with one possible exception there is no basis for rejecting this hypothesis despite the very different trading mechanisms used in opening trades and intra day trades

subgame perfect implementation this paper examines the use of stage mechanisms in implementation problems and provides a partial characterization of the set of subgam e perfect implementable choice rules it is shown that in many economic environments virtually an y choice rule can be implemented to illustrate the power of this approach the paper discusses a number of models in which it is possible to implement the first best although it wouldn t have been possible to do so without using stage mechanisms the diversity of these models suggests that subgame perfect implementation may find wide application copyright 1988 by the econometric society

uncertainty resolution private information aggregation and the cournot competitive limit a cournot model of oligopoly in which otherwise identical firms have private differential information about the common cost of production and a shared but unknown demand curve is examined a bayesian equilibrium of the corresponding game of incomplete information is solved for explicitly and analysed in the symmetric equilibrium different firms produce at different output levels because they have different information because the information individual firms have is random total output and hence market price is also random for any finite number of firms the main result of the paper relates to the asymptotic properties of the equilibrium when the number of firms becomes large under fairly general conditions on the joint distribution of demand and individual firms information about demand the random equilibrium price converges almost surely to a constant in the limit more importantly this price equals the perfectly competitive price in other words in large markets even if no firm knows the true market demand curve and firms are not price takers and do not use price as a signal to improve their information the competitive price will prevail with certainty in the limit aggregate outcomes are as if all firms shared their private information with each other

pareto optima and competitive equilibria with adverse selection and moral hazard this paper explores the extent to which standard general equilibrium analysis of pareto optima and of competitive equilibria can be applied to environments with moral hazard and adverse selection problems allowing for lotteries contracts with random components we first establish that an adverse selection insurance economy a moral hazard insurance economy a signaling economy and a private information labor market economy are all special cases of a simple general structure we then show that techniques for characterizing pareto optimal contracts as solutions to concave programming problems are useful and nice and appear to be broadly applicable allowing for lotteries we show how to characterize the optimal allocations for the adverse selection insurance and labor market economies we then show that standard existence and optimality theorems for competitive equilibria apply in the linear space containing lotteries if agents with characteristics which are distinct and privately observed at the time of initial trading enter the economy wide resource constraints in a homogeneous way other kinds of diversity are not critical for economies with moral hazard which satisfy the homogeneity condition competitive contract markets single out a subset of the optima and thus can be consistent with apparent unemployment and with a random allocation of labor supplied though all households are averse to risk the adverse selection insurance and signaling economies however do not satisfy the homogeneity condition and are difficult to decentralize efficiently with a price system

when does the stock market listen to economic news new evidence from copulas and news wires we study association between macroeconomic news and stock market returns using the statistical theory of copulas and a new comprehensive measure of news based on textual review and classification of news wires we find the impact of economic news on equity returns to be nonlinear and asymmetric in particular controlling for economic conditions and surprises associated with releases of economic data we find that the market reacts strongly and negatively to the most unfavourable macroeconomic news but appears to largely discount the good news further the most unfavorable news creates price drift and we document that selling stocks short in the wake of unusually bad news yields annual abnormal gross returns greater than four percent

the information content of discount rate announcements what is behind the announcement effect abstract a considerable volume of research shows that asset prices respond to changes in the federal reserve s discount rate while several competing hypotheses have been advanced to explain the market s response to discount rate announcements comparatively little effort has been made to differentiate among alternative hypotheses the result is an abundance of evidence establishing that asset prices respond to discount rate announcements but little if any agreement about why markets respond this article attempts to fill a void in the literature by pointing out how competing hypotheses differ and by constructing tests explicitly designed to differentiate among competing explanations the evidence suggests that the market s reaction to discount rate changes is purely an announcement effect i e a reaction to new information contained in the announcement that the direct effect of discount rate changes on market rates is nil that the announcement effect is invariant to the federal reserve s operating procedure and that generally speaking changes in the discount rate do not signal a change in monetary policy the announcement effect appears to vary with both the nature and extent of the information that the announcement of a discount rate change is believed to contain

optimal incentive contracts with multiple agents abstract a setting in which a single principal contracts with two agents who possess perfect private information about their own productivity is considered with correlated productivities each agent s private information also provides a signal about the other agent s productivity in contrast to the setting in which there is only one agent it is shown that such private information may be of no value to the agents it is only if the agents are risk averse that their private information may allow them to command rents moreover when the agents are constrained only to reveal their private information truthfully as a nash equilibrium the pareto optimal incentive scheme may induce the agents to adopt strategies other than truth telling this leads to the consideration of truth telling equilibria that are not pareto dominated in the subgame played by the agents among all such equilibria the one preferred by the principal restricts one agent to tell the truth as a dominant strategy and the other as a nash response to truth

controlling monetary aggregates the discount window this paper argues that current discount window policy coupled with non borrowed reserve targeting of the federal reserve makes the quantity of high powered money endogenous examination of the advisability of this procedure in a stochastic environment is conducted using a general equilibrium financial model it is concluded that the current policy reduces the destabilizing effects of shifts between various depository financial assets but increases the effect of other asset portfolio shifts and aggregate supply disturbances these results are consistent with the work of poole inasmuch as the current debate over discount policy is a repackaging of the debate over interest rate or aggregates control for monetary policy

lifting the veil of secrecy from monetary policy evidence from the fed s early discount rate policy traditionally monetary policy has been conducted under a veil of secrecy in its landmark freedom of information act case the federal reserve argued that it needed to delay the disclosure of its policy decisions claiming that immediate disclosure would cause the market to react in a way that was inconsistent with the fed s intentions based on this argument and others the fed was permitted to delay the release of fomc policy decisions most economists however believe that market forces would work to keep equilibrium outcomes more in line with policy maker s intentions if policy makers would announce their intentions and establish a reputation for behaving in a manner consistent with them this paper tests the hypothesis that the market responds more closely to the fed s intentions when the fed makes its intentions known by investigating the market s reaction to a change in discount rate policy in the early 1960s we find that the market responded in a manner inconsistent with the fed s intentions when they were unknown and responds in a manner consistent with them when the fed made its intentions known

the information content of german discount rate changes abstract discount rate changes always receive considerable attention in financial markets two hypotheses compete to explain financial market reactions the direct borrowing cost effect and the announcement effect for the bundesbank s discount rate changes after 1979 we find that market reactions cannot be attributed to a direct borrowing cost effect but exclusively to announcement effects the empirical results indicate that interest rates react to changes in the discount rate to the extent that they are unanticipated in contrast the response to anticipated changes in the discount rate is small and insignificant we proxy market anticipations by a multinomial logit model combined with a dummy variable capturing non quantifiable factors reported by the financial press moreover we show that the response of interest rates declines along the term structure and with the switch to greater emphasis on repurchase operations in early 1985

efficiency of the turkish stock exchange with respect to monetary variables a cointegration analysis in this study we test the semistrong form of the efficient market hypothesis in turkey by using the recently developed techniques in time series econometrics namely unit roots and cointegration the long run relationship between stock prices and inflation is investigated by assuming the possible existence of a proxy effect conclusions are made as to the efficiency of the turkish stock exchange and its possible implications for investors to our knowledge this is among the pioneering studies conducted in an emerging market that uses an updated econometric methodology to allow for an analysis of long run steady state properties together with short run dynamics

inflation s negative effects on real stock prices new evidence and a test of the proxy effect hypothesis the present study examines the effects of inflation on real stock prices using an error correction model of the s p 500 inflation is shown to have a negative and significant impact in a variety of model specifications the study also investigates whether the observed negative relation arises because inflation proxies for more fundamental relations between stock prices and either future output relative price uncertainty or inflation uncertainty the evidence reveals that inflation does not merely proxy for those other factors and thus the proxy effect hypothesis in its various forms is rejected

an empirical analysis of stock and bond market liquidity this article explores cross market liquidity dynamics by estimating a vector autoregressive model for liquidity bid ask spread and depth returns volatility and order flow in the stock and treasury bond markets innovations to stock and bond market liquidity and volatility are significantly correlated implying that common factors drive liquidity and volatility in these markets volatility shocks are informative in predicting shifts in liquidity during crisis periods monetary expansions are associated with increased liquidity moreover money flows to government bond funds forecast bond market liquidity the results establish a link between macro liquidity or money flows and micro or transactions liquidity a number of important theorems in finance rely on the ability of investors to trade any amount of a security without affecting the price however there exist several frictions 1 such as trading costs short sale restrictions and circuit breakers that impact price formation the influence of market imperfections on security pricing has long been recognized liquidity in particular has attracted a lot of attention from traders regulators

effects of government programs on rice acreage decisions under rational expectations the case of taiwan the effects of government programs on rice production in taiwan are examined under the rational expectations hypothesis results suggest that a crop shifting program designed to divert rice production to other targeted crops was unsuccessful because of contradictory government programs under rational expectations the marginal effects of a price support program on acreage decline as soon as targeted price is no longer increasing

the structure of expectations of the weekly money supply announcement abstract this paper examines the structure of expectations of the weekly money supply announcement in the late 1970s the data used are from a weekly telephone survey of money market participants the rationality and structure of expectations are explored with the data organized in three ways the mean response to each weekly survey the pooled sample of individual responses and time series of responses by each individual in the survey the effect of data aggregation on rationality tests is investigated the structure of the expectations data are also examined and it is found that both strong regressive influences and adaptive learning characterize the data

the information content of weekly money supply announcements this paper analyzes the information content of weekly money supply announcements and the use of this information in the market determination of interest rates a short term rational expectations model of the financial market is constructed which incorporates the reaction of the federal reserve to deviations from target money supply and provides a context for analyzing the impact of announcements in the model the federal reserve attempts to maintain target growth rates in the money supply by compensating for past deviations from target announcements which contain an unanticipated movement in the money supply lead the public to expect that the federal reserve will change the rate of growth in the short run to compensate the revision of expectations about future short term money supply leads the public to revise their expectations about short term interest rates the implications of the model are empirically tested using data from a survey of expected changes in the money supply and u s treasury bill data the results support the implications of the model that is weekly money supply announcements do contain new information for the market determination of interest rates and it is only the unanticipated component of the announcement which is important

collusion in auctions with externalities in standard auctions collusion among buyers eliminates bidding competition despite informational asymmetries collusion can however be imperfect when the situation involves externalities among buyers that is when a buyer is worse off if one rival wins the goon rather than if nobody gets it for intermediate values of the externality and under various objective functions the seller finds it optimal to design an auction that leads in equilibrium to a collusive outcome that is ex post inefficient for the group of buyers an ex ante incentive efficient collusion mechanism for the buyers is characterized in this situation

the reaction of stock returns to anticipated and unanticipated changes in money a re examination of the evidence in the frequency domain the relationship between money and stock returns is analysed for the 1977 1985 period spectral analysis and a var vector autoregressive model are used in the analysis the preliminary results suggest a positive relationship between stock returns and money supply along a business cycles and high frequency cycles a detailed analysis however suggests the spurious character of this observed relationship the money stock returns relationship over business cycles can be explained by a contemporaneous adjustment of stock returns and anticipated money in response to business cycle anticipations the high frequency relationship on the other hand can be related to contemporaneous adjustment of stock returns and money anticipations in response to expected inflation in a framework characterized by the anticipation of the federal reserve reaction function the empirical results strongly suggest that both stock returns and money anticipations are determined in a forward looking manner incorporating the informat

monetary transmission in the euro area early evidence monetary transmission evidence we examine the euro area monetary policy transmission process using post 1999 data with two main questions in mind has it changed after and because of economic and monetary union emu and if so is it becoming homogeneous across countries given the data limitations we concentrate on three components of the transmission mechanism the banking the interest rate and the asset market channels we find evidence that the transmission through banks has become more potent and homogeneous across countries on the financial market channels our evidence is somewhat weaker but suggestive the interest rate channel appears to have changed even before emu and now affects national economies in a broadly similar way the asset market channel proxied by the stock market effects of monetary policy also seems to work rather homogeneously across national markets no comparison with pre emu is available here a positive answer to both questions raised above represents in our view the best working hypothesis under current knowledge ignazio angeloni and michael ehrmann

is there news in the prime rate using intraday data we find that bank announcements of changes in the prime rate have significant effects on dow jones stock price indexes and yields in the treasury bill futures market we find comparable effects using daily data for indexes of share prices of banks and financial firms as well as interest rates on various maturities of government securities our evidence is consistent with the view that banks have a comparative advantage in processing private information gained through bank borrower relations and the regulatory supervision process

estimating the discount rate policy reaction function of the monetary authority this paper estimates a policy rule that explains the sign and the magnitude of the federal reserve s fed s discount rate changes it sets out a two sided type ii tobit model and develops a procedure for its estimation considering the discrete and censored nature of the changes the results suggest that the fed has conducted discount rate policy counter cyclically to influence output and to curb inflation and that the fed s response to policy indicators varies over monetary regimes furthermore consistency is found between the model prediction of the discount rate change and a classification based on whether the change is technical or non technical copyright 1999 john wiley sons ltd

pareto efficiency and weighted majority rules we consider the design of decision rules in an environment with two alternatives independent private values and no monetary transfers the utilitarian rule subject to incentive compatibility constraints is a weighted majority rule where agents weights correspond to expected gains given that their favorite alternative is chosen it is shown that a rule is interim incentive efficient if and only if it is a weighted majority rule and we characterize those weighted majority rules that are ex ante incentive efficient we also discuss efficiency in the class of anonymous mechanisms and the stability of weighted majority rules