a theory of current account and exchange rate determinations abstract the purpose of this paper is to construct a two period two country model that derives the current account the exchange rate the terms of trade and real interest rates from optimal behavior principles this is done by constructing a model that uses money mainly as a means of exchange where the technology of exchange is flexible due to potential substitutability of time and real balances as a means of coordinating transactions the discussion results in a framework that integrates elements of net saving theories and the monetary approach into a unified structure in which the two approaches are complementary viewpoints

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

trade credit bank lending and monetary policy transmission this paper investigates the role of trade credit in the transmission of monetary policy most models of the transmission mechanism allow the firm to access only financial markets or bank lending according to some net worth criterion in our model we introduce trade credit as an additional source of funding we predict that when monetary policy tightens there will be a reduction in market and bank lending and an increase in trade credit this is confirmed with an empirical investigation of 16 000 manufacturing firms

monetary policy and bank lending in developing countries loan applications rates and real effects abstract recent studies of monetary policy in developing countries document a weak bank lending channel based on aggregate data in this paper we bring new evidence using uganda s supervisory credit register with microdata on loan applications volumes and rates coupled with unanticipated variation in monetary policy we show that a monetary contraction reduces bank credit supply increasing loan application rejections and tightening loan volume and rates especially for banks with more leverage and sovereign debt exposure there are associated spillovers on inflation and economic activity including construction permits and trade and even social unrest

is the internet a us invention an economic and technological history of computer networking abstract although the inventions embodied in the internet originated in a diverse set of industrial economies the us was consistently the source of critical innovations and an early adopter of new applications why did other nations including several that made important inventive contributions to the internet not play a larger role in its development particularly in the creation of new business organizations governance institutions and applications we argue that the role of the us national innovation system in the creation of the internet echoes several key themes of us technological development before 1940 the presence of a large domestic market a set of antitrust and regulatory policies that weakened the power of incumbent telecommunications firms and a diverse private public research community that was willing to work with both domestic and foreign inventions were important preconditions for us leadership in computer networking innovation

monetary policy and investment dynamics evidence from disaggregate data we use disaggregated data on the components of private fixed investment pfi to estimate industry level responses of real investment and capital prices to unanticipated monetary policy the response functions derive from a restricted large scale var estimated over 1959 2007 our results point to significant cross sector heterogeneity in the behavior of pfi prices and quantities for assets belonging to the equipment category of fixed investment we find that quantities rather than prices absorb most of the fallout from a policy shock by contrast the price effects tend to be higher and the output effects lower for nonresidential structures

the lucas critique and the volcker deflation this paper examines in light of the lucas critique the behavior of the phillips curve and of the term structure of interest rates after october 1979 it starts with an informal account of the policy change and then discusses how we might expect these two relations to shift after such a change it finds little evidence of a direct effect of the policy change on the phillips curve at least until 1982 it finds substantial evidence of a direct effect on term structure this abstract was borrowed from another version of this item

the quantitative significance of the lucas critique doan litterman and sims dls have suggested using conditional forecasts to do policy analysis with bayesian vector autoregression bvar models their method seems to violate the lucas critique which implies that coefficients of a bvar model will change when there is a change in policy rules in this article we attempt to determine whether the lucas critique is important quantitatively in a bvar macro model that we construct we find evidence following two candidate policy rule changes of significant coefficient instability and of a deterioration in the performance of the dls method

forecasting wheat exports do exchange rates matter a vector autoregression is fit to recent u s data on wheat prices wheat export sales wheat export shipments and exchange rates forecast error decompositions and out of sample forecasts indicate that exchange rates have little influence on wheat sales and shipments

monetary impacts on prices in the short and long run some evidence from new zealand this paper presents support for long run monetary neutrality based on evidence that individual time series for money manufacturing prices and agricultural prices are nonstationary but cointegrated with a stationary proportional long run relationship among their levels dynamic simulations from a vector error correction model with this restriction imposed show that monetary shocks shift relative prices in favor of agriculture in the short run and permanently raise nominal prices manufacturing price shocks have similar long run effects but initially place agriculture in a cost price squeeze while agricultural price shocks are transitory and have little impact on the other series

the identification of monetary policy disturbances explaining the liquidity puzzle abstract this paper examines recent work on the identification of monetary policy disturbances its main finding is that the empirical anomalies found in the literature reflect a failure to properly address the federal reserve s policy of accommodating reserve demand shocks a new method of identifying monetary policy using nonborrowed reserves is proposed using this specification policy has a strong persistent liquidity effect regardless of subsample policy granger causes output even in the presence of interest rates explaining approximately 49 of the variance in output at a two year horizon and the residual explanatory power of interest rates for output is negligible

public policies to support basic research what can the rest of the world learn from us theory and practice and what they should not learn the information based theoretical model for public support of basic research developed in the usa at the end of the 1950s has held up well in practice in spite of its neglect of training benefits of necessary investment in research infrastructure and of its consequently limited relevance outside the usa at the same time us practice in basic research has often been misinterpreted as being driven by short term usefulness whereas its key features are massive and pluralistic government funding high academic quality and the ability to invest in the long term development of new often multi disciplinary fields challenges for the future include greater and often ill judged pressures from governments for demonstrable usefulness of the basic research it supports the entirely separate development of direct links to application in bio medical and software fields and more complicated links between basic research and application resulting from the changes in the internationalisation of corporate r d effective policies will depend on better understanding of what makes universities responsive to investments in promising new fields of research and teaching how and why basic fields of great practical usefulness emerge and how basic research requirements are conditioned by a country s level and pattern of economic development bibliometric data could make a considerable contribution if it was more widely recognised that they have informational properties similar to the output of basic research and therefore deserve public support this paper was prepared for the celebration of richard nelson s 70th birthday held in nyc from 13 15 october 2000 comments welcome

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

using private forecasts to estimate the effects of monetary policy i develop a methodology that uses the forecasts of market participants and of policy makers to estimate the effects of monetary policy on output and inflation my approach has advantages over the standard practice of fitting a vector autoregression to the data i apply my methodology to data on output interest rates and prices i find that even using the federal reserve board s greenbook forecasts to control for the policy maker s information set prices rise initially in response to a monetary contraction this finding undermines the standard justification for including an index of commodity prices in vars

common marketing agency as a device for facilitating collusion in a variety of markets firms voluntarily and independently delegate control over certain aspects of marketing to common agents in this article we present an explicit model of agency delegation where firms noncooperatively select agents name output prices and choose compensation schemes we exhibit an equilibrium in which all strategic variables not merely the marketing choices delegated to agents but prices as well are selected perfectly cooperatively this cooperative equilibrium is very simple and attractive each firm sets the collusive output price and employs a commission scheme to compensate the agent although each

real effects of monetary policy in a world economy abstract we present a two country heterogeneous agent model in which changes in a country s monetary policy affect real interest rates relative prices of traded and nontraded goods and real exchange rates nontransitory real effects of monetary policy stem from legal restrictions in the form of country specific reserve requirements without violating the classical assumptions of individual rationality and flexible prices the model s implications seem qualitatively consistent with the u s experience of the 1980s a monetary policy tightening leading to a rise in the real interest rate and to an initial rise in the real value of the dollar which is subsequently reversed

a note on switching costs and technology choice it is a commonplace claim that the ibm pc owes its success not to technical superiority but to the belief that it would be successful this note presents a simple model where switching costs between brands say because of incompatible software can lead to an inferior technology being adopted switching costs arise when buyers find it costly to switch to a competitor once they have bought from one manufacturer even if ex ante their products were identical 1 if consumers care about which firms survive perhaps because they need to buy spare parts then their belief that particular firms will succeed may ensure that these firms do indeed succeed since possibly more efficient rivals may be unable o overcome consumers reluctance to buy one may therefore find inferior technologies being adopted this model can be seen as an example of the analysis of katz and shapiro 1986 in which expectations can also lead to poorer products winning out in their model this is because of network externalities that is to say consumers value a product more highly the more other consumers buy it here there are no direct network externalities but the presence of switching costs and increasing returns together generates an indirect externality since the more consumers who buy a product the more likely it is to survive and the more attractive it is to other consumers

pandemics of the poor and banking stability we first develop a theoretical model that shows that the likelihood of a collapse of the banking industry of a developing country increases as the joint prevalence of large pandemics such as aids and malaria increases we also show that the optimal bank reserves increase as the prevalence increases in the empirical part of the paper we consider a large dataset of developing countries and we exhibit a causality effect from combined prevalence to deposit turnover as well as causality effect from an increase of combined prevalence to an increase in bank reserves those empirical facts therefore support our theoretical findings

quantitative easing and bank lending evidence from japan abstract prior to the recent global financial crisis one of the most prominent examples of unconventional monetary stimulus was japan s quantitative easing policy qep most analysts agree that the qep did not succeed in stimulating aggregate demand sufficiently to overcome persistent deflation however it remains unclear whether the qep simply provided little stimulus or whether its positive effects were overwhelmed by the contractionary forces in japan s post bubble economy in the spirit of kashyap and stein 2000 and hosono 2006 this paper uses bank level data from 2000 to 2009 to examine the effectiveness in promoting bank lending of a key element of the qep the bank of japan s injections of liquidity into the interbank market we identify a robust positive and statistically significant effect of bank liquidity positions on lending especially for weaker banks suggesting that the expansion of reserves associated with the qep boosted the flow of credit however the overall size of that boost was probably quite small first the estimated response of lending to liquidity positions in our regressions is small second although the boj s reserve injections boosted bank liquidity significantly much of the effect was offset as banks reduced their lending to each other finally the effect of liquidity on lending appears to have held only during the initial years of the qep when the banking system was at its weakest by 2005 even before the qep was abandoned the relationship between liquidity and lending had evaporated

money output and the expected real interest rate this paper tests the exclusion of lagged growth rates of money and output from regression equations with serially correlated disturbances for the expected real interest rate the authors empirical approach is an extension of the empirical strategies of eugene f fama 1975 and frederic s mishkin 1981 which invoke the orthogonality of the inflation forecast error to predetermined regressors under the maintained hypothesis of rational expectations they discuss the implications of their tests for simple real business cycle models copyright 1991 by mit press

the real consequences of market segmentation we study the real effects of market segmentation due to credit ratings using a matched sample of firms just above and just below the investment grade cutoff these firms have similar observables including average investment rates however flows into high yield mutual funds have an economically significant effect on the issuance and investment of the speculative grade firms relative to their matches especially for firms likely to be financially constrained the effect is associated with the discrete change

firm survival and the evolution of oligopoly after their commercial introduction the number of producers of autos tires televisions and penicillin initially grew and then experienced a sharp decline or shakeout guided by an evolutionary model of entry and exit firm survival patterns in the four products are examined to determine whether there were common forces governing their distinctive evolution predictions concerning the effects of pre and post entry experience and the timing of entry on firm survival are tested the findings are used to reflect on why industries experience shakeouts and evolve to be oligopolies

the effects of monetary policy shocks comparing contemporaneous versus long run identifying restrictions this study compares the effects of monetary policy shocks on the macroeconomy using four different procedures for identifying policy shocks that use contemporaneous restrictions and a procedure that uses long run restrictions impulse response functions are computed using the same vector autoregressive var model and sample period the comparison is done for a model that includes only a short term interest rate and for a model that adds a long term rate as well sources of differences in the magnitude of effects across identification schemes are examined vector autoregressive var models have been widely used in recent years to analyze the effects of monetary policy shocks however estimates of the macroeconomic effects of monetary policy often differ across studies with regard to both timing and magnitude the studies generating these estimates frequently differ in terms of the variables constituting the model the sample period for estimation and the method of identifying policy shocks see e g christiano eichenbaum and evans 1994 1996 1998 gordon and leeper 1994 lastrapes and selgin 1995 pagan and robertson 1995 1998 leeper sims and zha 1996 certainly a critical element in the estimation of the effects of policy shocks is the identification of these policy shocks that is the determination of exogenous shocks to monetary policy two methods have been widely used in the var literature to identify structural shocks to monetary policy one general approach employs restrictions on the contemporaneous relations among the variables of the var model while the second general approach imposes restrictions on the long run relations among the variables although economic and institutional arguments can be used to rationalize each identification scheme there is no consensus as to which approach to identifying shocks is preferred and the weaknesses of both approaches have been discussed in the literature keating 1992 lastrapes and selgin 1995 and mccarthy 1995 consider limitations of the use of contemporaneous identifying restrictions faust and leeper 1997 discuss potential drawbacks of imposing long run restrictions the aim of this study is to examine the implications of contemporaneous versus long run

federal reserve interest rate targeting rational expectations and the term structure abstract the amount of information in the yield curve for forecasting future changes in short rates varies with the maturity of the rates involved indeed spreads between certain long and short rates appear unrelated to future changes in the short rate contrary to the rational expectations hypothesis of the term structure this paper estimates a daily model of federal reserve interest rate targeting behavior which accompanied by the maintained hypothesis of rational expectations explains the varying predictive ability of the yield curve and elucidates the link between fed policy and the term structure

a survey of the international evidence and lessons learned about unconventional monetary policies is a new normal in our future this study examines the effectiveness of unconventional monetary policies ump it considers whether these policies have been successful and where their effects remain uncertain we survey both the domestic financial market and macro economic effects of ump in the economies where these policies were introduced and their international spillover effects the paper considers the impact of a wide range of ump rather than the effects of specific policy instruments we also provide a retrospective on the important case of japan beginning in the late1990s and ask whether the eurozone s experience with ump is substantively different given its structure of policymaking finally we ask if the old normal is not in our future should the new normal in monetary policy routinely include what we now refer to as ump we conclude that ump can prevent economic collapse but are not designed to promote stronger long term economic growth apart from new communication strategies the use of ump under normal circumstances does not appear to be a sound monetary policy strategy failure to learn this lesson might also enable future policy makers to ask or expect too much from their central banks

identifying monetary impacts on agricultural prices in var models since the mid 1970s a number of studies have used vector autoregressive var models to evaluate the magnitude and timing of macroeconomic impacts on agriculture use of the var method has been viewed as a way to obtain empirical evidence about these impacts that might not emerge from more traditional overidentified and less dynamic econometric models the hope has been that by placing minimal restrictions on var models the true structure of the economic relationships under investigation can be observed while the aim is laudable critics of var models have argued that it has had the unfortunate consequence of obscuring some important structural identification issues and seeming to promise that something can be obtained for nothing cooley and leroy leamer they point out that identifying restrictions are required to give economically interpretable meaning to the results of any simultaneous equation model sem in standard practice identification of var models is obtained implicitly by choice of a choleski decomposition of the covariance matrix of one step ahead forecast errors which is equivalent to imposing a recursive structure for the economy of concern is that the recursive structure may not be believable further as bernanke has observed examination of ad hoc variants of the recursive order implies a strange set of prior beliefs in which the analyst holds strongly that the system is recursive but is not sure in what order the variables should be arranged in response to these concerns several recent papers have pointed out that identification of var models does not have to rely on the assumption that the contemporaneous structure is recursive bernanke sims rather the distinguishing features of a var model are first that identification rests on the assumption that distinct mutually orthogonal behavior shocks drive the economy and second that lagged relationships among the endogenous and exogenous variables if any are left entirely unrestricted given these features a var model must be identified solely by restrictions placed on the contemporaneous interactions among the variables but the identifying restrictions do not have to preclude simultaneity in this paper we elaborate on the structural interpretation of var models and use this analysis to examine monetary impacts on agricultural prices we discuss the identification problem and the implications of a recursive structure we illustrate our points with respect to the three variable model of money industrial prices and agricultural prices that has been used in several articles to evaluate the effects of monetary shocks on price dynamics bessler devadoss and meyers we then introduce a somewhat richer behavioral model of the macroeconomy and its effects a simultaneous model is shown to offer a more believable identification of monetary policy and other macroeconomic shocks than a recursive model and monetary impacts on agricultural prices are assessed

network externality an uncommon tragedy economists have defined network externality and have examined putative inframarginal market failures associated with it this paper distinguishes between network effects and network externalities where the latter are market failures the authors argue that while network effects are important network externalities are theoretically fragile and empirically undocumented some network externalities are merely pecuniary network ownership or transactions among network participants can internalize some network effects the type of market failure that has been associated with these externalities is a transition problem that has little to do with externality

trade credit and the bank lending channel the bank lending channel theory posits that during monetary contractions banks restrict some firms loans thus reducing their desired investment independently of interest rates previous research finds small firms reduce while large firms accelerate loan growth we find that small firms increase trade credit a substitute credit indicating a strong loan demand it supports the bank lending channel they do not voluntarily cut bank loans since they increase a less desirable alternative using trade credit is propitious since unlike commercial paper investigated by previous researchers it is widely used by the small firms suffering the loan decline surprisingly we also find large firms increase trade credit a puzzle since they are typically assumed to have wide access to other credit using individual manufacturing firm data we find the reasons large firms use trade credit are financial in nature those without a bond rating increase trade credit that is without access to open market credit as relatively few firms have this mark of quality it implies that more firms are affected by credit constraints than previously believed

liquidity exchange rates and business cycles abstract this paper presents a two country two good two currency model to study the role of liquidity effects in exchange rate determination and the international transmission of economic fluctuations the model provides an exchange rate equation which is different from the simple purchasing powerparity law of exchange rate determination both monetary injections and real disturbances can lead to exchange rate fluctuations and comovements of interest rates prices and output of the two economies whether the covariances of variables in the two countries are positive negative or zero depends critically upon the substitutability of the two consumption goods in consumers preferences

on the asymmetric effects of money supply shocks international evidence from a panel of oecd countries we examine whether the asymmetric effect of money on output is an international phenomenon and investigate the reasons for this asymmetry quarterly data from the 1963 93 period for a panel of twelve oecd countries strongly support asymmetry internationally negative money supply shocks are shown to have a stronger effect on output than positive shocks our methodology also enables us to distinguish between two sets of theories consistent with the output asymmetries a convex aggregate supply and a credit view we find that the effects of money on prices are generally symmetric which may be consistent with both sets of theories being operative at once

monetary policy arithmetic reconciling theory with evidence empirical evidence indicates that in countries with low inflation rates a permanent decrease in inflation rate either has no impact on capital stock and output superneutrality or causes them to fall moderately existing budget arithmetic models of monetary policy cannot deliver superneutrality in this paper we conduct a budget arithmetic analysis of monetary policy using a money demand specification money in the utility function that is new to this literature we find that one simple assumption about utility from money delivers superneutrality while a more general assumption delivers departures from superneutrality in the direction consistent with the evidence jel classification e60 e13

the international transmission of monetary policy through financial centres evidence from the united kingdom and hong kong abstract this paper explores the cross border transmission of monetary policy by comparing and contrasting the results for two major international financial centres hong kong and the united kingdom we examine the effect of monetary policy in the usa euro area and japan on banks domestic lending behaviour using individual bank level data we find that financial connections in the form of lending to and borrowing from the country which changes monetary policy play an important role in the transmission of foreign monetary policy we are able to establish evidence for both a bank funding and bank portfolio channel of monetary policy for both hong kong and the uk these results contrast to the largely inconclusive results from previous studies whose aggregate nature may have masked offsetting individual bank effects

what can survey forecasts tell us about information rigidities a lot we derive common and conflicting predictions from models in which agents face information constraints and then assess their validity using surveys of consumers firms central bankers and professional forecasters we document that mean forecasts fail to completely adjust on impact to shocks leading to statistically and economically significant deviations from the null of full information the dynamics of forecast errors after shocks are consistent with the predictions of models with information rigidities the conditional responses of forecast errors and disagreement among agents can also be used to differentiate between some of the most prominent models of information rigidities

unconventional monetary policy and the credit channel in the euro area abstract we disentangle credit supply and demand and we then embed this information into a bayesian threshold var model to investigate the importance of the demand channel and the broad credit channel in the transmission of unconventional monetary policy on the macroeconomy during financial stress periods we find that during such periods ump shocks boost aggregate demand for loans increase agents net worth and revitalize credit to firms and households in addition counterfactual analysis suggests that non standard policy measures aiming at stimulating loan demand and relaxing banks balance sheet constraints would provide a significant support to economic activity prices and the financial sector

international transmission of u s monetary policy shocks evidence from stock prices this paper analyzes intraday changes in firm level equity prices around interest rate announcements to assess the transmission of u s monetary policy to the global economy we document that foreign firms on average are roughly as sensitive to u s monetary policy as u s firms although we also find considerable cross sectional variation across firms in particular foreign stocks in cyclically sensitive industries show stronger responses to interest rate surprises consistent with a demand channel of policy transmission in addition transmission of u s policy appears to be stronger to economies with fixed exchange rates evidence for a credit channel is weaker

the diffusion of adsl and costs of switching internet providers in the broadband industry evidence from the french case the innovative broadband internet industry is characterised by inertia phenomena in terms of technology choice as well as selection of internet service providers isps within the set of firms providing internet very often in europe the incumbent operator has the lion s share of end customers and supplies the dominant technology focusing on the french case this paper shows that although inertia on the supply side partly due to the regulation process in itself helps to explain the technology mix reached to date a more complete picture of the inertia can be obtained when we consider the existence of costs faced by customers when switching between isps we calculate these so called switching costs the closing section of this paper derives several implications in terms of policy

technology adoption in the presence of network externalities we analyze technology adoption in industries where network externalities are significant the pattern of adoption depends on whether technologies are sponsored a sponsor is an entity that has property rights to the technology and hence is willing to make investments to promote it key findings include the following 1 compatibility tends to be undersupplied by the market but excessive standardization can occur 2 in the absence of sponsors the technology superior today has a strategic advantage and is likely to dominate the market 3 when one of two rival technologies is sponsored that technology has a strategic advantage and may be adopted even if it is inferior 4 when two competing technologies both are sponsored the technology that will be superior tomorrow has a strategic advantage

the deposits channel of monetary policy we propose and test a new channel for the transmission of monetary policy we show that when the fed funds rate increases banks widen the interest spreads they charge on deposits and deposits ow out of the banking system we present a model in which imperfect competition among banks gives rise to these relationships an increase in the nominal interest rate increases banks market power inducing them to increase deposit spreads and hence restrict deposit supply households respond to the increase in deposit prices by substituting from deposits into less liquid but higheryielding assets consequently changes in the nominal interest rate aect banks cost of capital and lending using branch level data on the universe of u s banks we show that following an increase in the fed funds rate deposit spreads increase by more and supply falls more in areas with less deposit competition we control for changes in banks lending opportunities by comparing branches of the same bank we control for changes in macroeconomic conditions by showing that deposit spreads widen immediately after a rate change and even if this change is fully anticipated our results imply that monetary policy has a signicant impact on how the nancial system is funded on the quantity of safe and liquid assets it produces and on its provision of loans to the real economy

technology systems and technology policy in an evolutionary framework the central purpose of this paper is to outline an evolutionary theory of technology policy and to connect it with the emerging literature on national systems of innovation any understanding of technology policy must be based on a clear understanding of the nature of technology and the important differences between science and technology technology can be treated in terms of knowledge skills and artifacts and in each case there are different variety generating mechanisms different selection processes and different institutional structures for policy purposes the degree of connection between these different dimensions of technology is at the core of technology policy c 1995 academic press inc copyright 1995 by oxford university press

commodity prices and unit root tests price theory suggests that commodity prices should be stationary series yet tests for unit roots rather frequently imply that these prices are not stationary this seeming inconsistency is investigated by applying alternative specifications of unit root tests to prices of corn soybeans barrows and gilts and milk the preponderance of evidence suggests that nominal prices do not have unit roots but the results are sensitive to the specification of the test equation accounting for a structural change that shifts the mean appears to be an important issue in unit root tests

curtailing the black box german banking groups in the transmission of monetary policy abstract the paper examines the role of portfolio decisions of german banking groups in the transmission of monetary policy a small econometric model is augmented with segregated bank balance sheet variables in order to study potentially different effects of tight money on these variables the results provide evidence for banks playing an active role in the transmission process and are beneficial for two fields of research the findings indicate sectoral differences of monetary policy in line with transmission models based on informational frictions in addition the results lend econometric support to the existence of close bank customer ties for certain banking groups in germany whereas large banks adjust their credit position markedly following a monetary shock the smaller savings banks and credit cooperatives seem to shield their customers from the brunt of a policy tightening

monetary policy real exchange rates and u s agricultural exports interest rates will attract capital to dollar money market instruments which in turn will cause the value of the dollar to rise in foreign exchange markets a stronger dollar makes our exports more expensive to other countries thereby reducing the quantity demanded and it also causes the price of imports into the united states to decline in dollar terms creating competitive pressures for domestic imports sic that compete with imports such as the automobile steel and textile industries the monetary authorities accomplish what they want to accomplish but the burden of adjustment is borne by the export sectors and the sectors that have strong import competition in this way one can see that the problems of agriculture and the automobile industry in the early 1980 s have been cut in part from the same cloth a period of very tight monetary policy

a critique of exchange rate treatment in agricultural trade models comment the influence of the value of the dollar on developments in the u s farm sector is now widely recognized even so considerable controversy remains over the magnitude of exchange rate effects on agriculture while this is largely an issue of empirical measurement there is also a broadly held perception that the conceptual discussion of these effects has been inadequate in part this is due to extensive discussion of these effects based on partial equilibrium often single market analysis the single market framework imposes tight constraints on exchange rate impacts on equilibrium prices and export quantities in particular in a single market partial equilibrium model the exchange rate elasticity of price is always less than unity in absolute value 1 in an important paper chambers and just extended the single market partial equilibrium approach to account for the effects of an exchange rate realignment on all prices in an n good economy their analysis remained partial in the sense that the exchange rate was exogenous and income was held constant nevertheless they concluded that potential cross price effects in excess supply and excess demand functions make it inappropriate to restrict the exchange rate elasticity of any specific price to the closed interval 1 0 the purpose of this comment is to place the analysis of potential exchange rate effects in agricultural markets more firmly in the context of general equilibrium trade theory the approach presented herein follows krueger chipman 1974 and others in drawing a distinction between traded and nontraded goods then the crucial concept is the association of the real exchange rate and movements of disposable income between countries the xchange rate which affects the prices of traded goods vis a vis the prices of nontraded goods and relative prices among traded goods adjust jointly to accommodate the equilibrium induced by a trade imbalance the income movement between countri s is key because it creates a link between exchange rate and price changes that is not considred in a partial equilibrium analysis explicit consideration of this link clarifies the role of the exchange rate in goods markets and provides a clearer rationale for the case of a percentage change in a price exceeding the percentage exchange rate realignment

understanding the accumulation of bank and thrift reserves during the u s financial crisis abstract the level of aggregate excess reserves held by u s depository institutions increased significantly at the peak of the 2007 2009 financial crisis although the amount of aggregate reserves is determined almost entirely by the policy initiatives of the central bank that act on the asset side of its balance sheet the motivations of individual banks in accumulating reserves differ and respond to the impact of changes in the economic environment on individual institutions we undertake a systematic analysis of this massive accumulation of excess reserves using bank level data for more than 7000 commercial banks and almost 1000 savings institutions during the u s financial crisis we propose a testable stochastic model of reserves determination when interest is paid on reserves which we estimate using bank level data and censored regression methods we find evidence primarily of a precautionary motive for reserves accumulation with some notable heterogeneity in the response of reserves accumulation to external and internal factors of the largest banks compared with smaller banks we combine propensity score matching and a difference in differences approach to determine whether the beneficiaries of the capital purchase program of the troubled asset relief program accumulated less cash including reserves than non beneficiaries contrary to anecdotal evidence we find that banks that participated in the program accumulated less cash including reserves than nonparticipants in the initial quarters after the capital injection

regional finance a survey the role of money and nancial markets in the regional matters 1 economy has been attracting increasing attention in we start with a review of the treatment of money recent years it has been a topic of interest for longer in regional economics and then turn to the much

u s corn exports the role of the exchange rate abstract time series econometric methods are applied to monthly observational data over the period 1978 1992 on real exchange rates real corn prices corn export sales and corn export shipments for the united states in sample fit and out of sample forecast results are used to discern whether exchange rates have elicited systematic responses in u s corn prices sales and shipments and whether the dynamic transmission mechanisms tying these variables together have changed over time a structural break appears to have occurred in early 1985 no cointegration is found between exchange rates price sales and shipments in either sub period influences are all short run or between stationary variables the role of the exchange rate appears to have moderated in the post 1985 period implications for policy analysis are discussed

partisan monetary policies presidential influence through the power of appointment we investigate the channels through which partisan influence from a presidential administration could affect monetary policy making influence could be a result of direct presidential pressure exerted on members of the federal open market committee fomc or it could be a result of partisan considerations in presidential appointments to the board of governors to investigate these two channels of influence we devise and apply a method for estimating parameters of monetary policy reaction functions that can vary across individual members of the fomc our results suggest that the appointments process is the primary mechanism by which partisan differences in monetary policies arise

agricultural and financial market interdependence in the short run a theoretical model capable of examining the effects of various monetary policies on agriculture is developed results from comparative static experiments with the model show that a restrictive monetary policy may adversely affect agriculture results from the theoretical model are compared with earlier studies and are empirically investigated using vector autoregression techniques in general empirical analysis supports the theoretical developments

long run and short run co movements in energy prices and the prices of agricultural feedstocks for biofuel recent expansions in biofuel production have led to concerns about an emerging new relationship between energy prices and the prices of agricultural feedstock for biofuel we provide new econometric evidence on this relationship using common trend common cycle decompositions to estimate long run and short run co movement across various energy and agricultural prices we also test for the presence of regime changes that may alter the relationship between energy and agricultural feedstock prices under certain conditions we find that co movements between energy and agricultural feedstock prices tend to dissipate in the long run which has important implications for biofuel and food policy

monetary policy shocks and foreign investment income evidence from a large bayesian var abstract this paper assesses the transmission of monetary policy in a large bayesian vector autoregression based on the approach proposed by banbura et al 2010 the paper analyzes the impact of monetary policy shocks in the united states and canada not only on a range of domestic aggregates trade flows and exchange rates but also foreign investment income the analysis provides three main results first a surprise monetary policy contraction has a statistically important impact on both gross and net foreign investment income flows in both countries against the background of growing foreign wealth and investment income this result provides preliminary evidence that foreign balance sheet channels might play an increasingly significant role for monetary transmission second the impact of monetary policy on foreign investment income flows differs considerably across asset categories and over time suggesting that the investment instruments and the currency denomination of a country s foreign assets and liabilities are potentially relevant for the way in which monetary policy affects the domestic economy finally the results support existing evidence on the effectiveness of large vector autoregressions and the bayesian shrinkage approach in eliminating price and exchange rate puzzles

relative prices and money a vector autoregression on brazilian data recent data on brazilian agricultural prices industrial prices and money supply are analyzed in a vector autoregression the empirical findings show strong one way granger type causality from money supply to agricultural prices while feedback is observed between industrial prices and money supply under the usual monetarist ordering of contemporaneous innovation covariance agricultural prices do not adjust faster than industrial prices to a shock in the money supply

identifying vars based on high frequency futures data abstract using the prices of federal funds futures contracts we measure the impact of the surprise component of federal reserve policy decisions on the expected future trajectory of interest rates we show how this information can be used to identify the effects of a monetary policy shock in a standard var this alternative approach to identification is quite different and we argue more plausible than the conventional identifying restrictions we find that a usual recursive identification of the model is rejected as is any identification that insists on a monetary policy shock having an exactly zero effect on prices contemporaneously we nevertheless agree with the conclusion of much of the var literature that only a small fraction of the variance of output can be attributed to monetary policy shocks

an investigation of the effect of monetary factors on agriculture abstract this paper uses an econometric model to assess some of the effects of macro monetary factors on u s agricultural markets attention is focused on impacts of decreasing increasing the level of domestic credit on agricultural trade prices inventory accumulation and domestic disappearance results show that tight monetary policy lowers prices and increase demand for domestic agriculture however the upward pressure on the exchange rate seriously deteriorates the position of u s exports in international markets

sectoral systems of innovation and production the concept sectoral system of innovation and production provides a multidimensional integrated and dynamic view of sectors it is proposed that a sectoral system is a set of products and the set of agents carrying out market and non market interactions for the creation production and sale of those products a sectoral systems has a specific knowledge base technologies inputs and demand agents are individuals and organizations at various levels of aggregation they interact through processes of communication exchange co operation competition and command and these interactions are shaped by institutions a sectoral system undergoes change and transformation through the co evolution of its various elements 2002 elsevier science b v all rights reserved

future directions for food and agricultural trade policy during the 1970s u s agriculture experienced an unprecedented export boom this export boom produced an unusual albeit short lived period of prosperity for agriculture land previously idled by government programs was brought back into production and new land cleared with the result that by 1981 cropland in production was a record high 391 million acres in constant value 1967 dollars terms net farm income rose from 12 2 billion in 1971 to an unusual peak of 25 1 billion in 1973 the need for direct government support of agriculture declined in the 1980s this strong export performance of u s agriculture has been reversed the physical volume of exports reached a peak in 1980 and the value of exports reached a peak in 1981 both volume and value have steadily declined since those peaks total value of exports declined from 43 8 billion in 1981 to 34 8 billion for the 1983 fiscal year a decline of 21 this decline in foreign markets has contributed to a serious income problem in agriculture net farm income declined to an unprecedentedly low figure of 7 6 billion in 1967 dollars in 1982 it also contributed to a serious financial crisis in agriculture as expanded debt commitments based on an export driven expectation of continued prosperity for agriculture was met with significantly reduced farm incomes serious cash flow problems and reduced equity as land values declined the decline in farm markets has also created a serious challenge to farm programs and policy makers from negligible program costs in the 1970s except for the dairy program the costs of farm programs burgeoned out of control by 1981 they were up to 3 2 billion in 1982 they tripled to 10 billion and for 1983 the regular program costs are expected to more than triple again to 21 8 billion commodity stocks also burgeoned to very high levels as recordand near record breaking crops were met with slumping markets the acre equivalent of the decline in exports of corn cotton wheat and soybeans from 1980 to 1983 was 22 6 million acres u s agriculture obviously faced a serious adjustment problem the administration s response to this crisis was the payment in kind pik program which removed close to 82 million acres of land from production in 1983 the pik program is expected to add anywhere from 12 to 21 billion to this year s outlays for farm programs that means that total program costs for 1983 may well be as large as 35 billion but as important as program costs is the paid idling of some of this nation s most productive resources at the very time it is attempting to recover from the worst economic slump in the post world war ii period it is no exaggeration to say that u s agriculture and agricultural policy are at a crossroads if its export performance does not improve it will be forced to deal with a sizable adjustment problem of transferring resources out of agriculture it can do that by letting market forces do their job or by costly government programs in the form of paid diversion large export subsidies or some other means to bring supply in balance with demand or some combination of the two in this paper i want to address the export performance issues the emphasis on export performance rather than trade policy is a considered one i find it impossible to discuss trade policy without considering domestic commodity programs the two are inextricably intertwined hence i choose the generic concept of export performance since i will discuss both domestic program issues and trade policy issues the first part of this paper reviews the changes in the international economy over the last fifteen to twenty years these changes are g edward schuh is a professor and head department of agricultural and applied economics university of minnesota

macroeconomic impacts on bulgarian agriculture during transition an unstable and erratic macroeconomy in an economy in transition might be expected to affect agricultural performance this is tested for bulgaria between 1992 and 1997 using impulse response functions from a vector autoregressive var model despite data limitations it is found that shocks to the foreign exchange rate and interest rate feed into farm prices and agricultural exports but equilibrium will be re established within 5 years agricultural policies may not be sufficient to counteract the wider macroeconomic forces

why commercial banks held excess reserves the japanese experience of the late 1990s we investigated empirically why japanese banks held excess reserves in the late 1990s specifically we pin down two factors explaining the demand for excess reserves a low short term interest rate or call rate and the fragile financial health of banks the virtually zero call rate increased the demand for excess reserves substantially and a high bad loans ratio largely contributed to the increase in excess reserve holdings we found that the holdings of excess reserves would fall by two thirds if the call rate were to be raised to its level prior to the adoption of the zero interest rate policy and the bad loans ratio were to fall by 50

macroeconomics and agriculture in tunisia this article aims to analyse the impact of changes in the monetary policy and the exchange rate on agricultural supply prices and exports the methodology used is based on the multivariate cointegration approach ten variables are considered interest and exchange rates money supply inflation agricultural output and input prices agricultural supply and exports income and the rate of commercial openness the sample period covers annual data from 1967 to 2002 due to the short sample period two subsystems are considered first long run relationships are identified in each subsystem second both subsystems are merged in order to calculate the short run dynamics the results indicate that changes in macroeconomic variables have an effect on the agricultural sector but the reverse effect does not hold

effects of exchange rate changes on u s agriculture a dynamic analysis an econometric model of the wheat corn and soybean markets is used to examine the dynamic effects of exchange rate fluctuation on u s commodity markets exports and agricultural prices are found to be sensitive to movements in the exchange rate while domestic factors such as disappearance and inventories are less sensitive but still responsive dramatic short run adjustments in prices and exports are followed by less dramatic but significant longer run adjustments thus the hypothesis of elastic response to the exchange rate seems particularly relevant for the short run

relative prices and money further results for the united states empirical results support the hypothesis that agricultural prices respond faster than manufactured product prices to a change in money supply in the united states sims vector autoregression var technique was applied in examining this hypothesis the monte carlo integration method was used to test the significance of the impulse responses generated by the var technique

the role of interbank markets in monetary policy a model with rationing the empirical research on monetary transmission has reported a number of puzzles challenging extant theoretical models of the transmission mechanism in this paper we argue that asymmetric information in the interbank market may be important to have a better understanding of the mechanisms at work in the transmission process we show that asymmetric information may induce an equilibrium with rationing this in turn has two major implications first it reconciles the apparent irresponsiveness of business investment to the user cost of capital with the large impact of monetary policy magnitude puzzle and second it shows that this impact will not be limited to short term credit supply but will also affect long term lending even if the corresponding interest rate is unaffected composition puzzle

the cyclicality of price cost margins in banking an empirical analysis of its determinants i introduction in this paper we study the cyclical behavior of price cost margins in banking calculated as the difference between the interest rate on loans and deposits using time series quarterly data for the period 1979 2005 in the united states this cyclical behavior of banks price cost margins a key fact about business fluctuations has received little attention before dueker and thornton 1997 find evidence that in cyclical downturns banks opt for a relatively high price cost margin however they focus exclusively on the markup of the bank prime lending rate over the marginal cost of funds for banks mandelman 2006 presents evidence on the cyclicality of margins for a large sample of countries and uses foreign bank penetration to explain the behavior of margins 1 in olivero 2005 aliaga diaz 2006 and aliaga diaz and olivero 2010a we document the countercyclicality of banks price cost margins in the united states in that paper we do so using an atheoretical methodology based on var forecast errors to measure comovement between variables 2 in this paper we build on this atheoretical evidence and take a step further by constructing an empirical model of the determinants of the cyclical behavior of margins here we take a theory based approach to decide on the inclusion of the relevant regressors that belong to this model doing so allows us to contribute to the literature by providing potential explanations for the previously documented countercyclical nature of margins monetary policy and credit risk could be suggested as the main and potentially the only determinants of the cyclical behavior of margins on the one hand the bank lending channel of monetary transmission predicts that the federal funds rate as a monetary policy indicator and margins are directly related therefore if policy rates exhibit a particular cyclical behavior not controlling for monetary policy could bias the estimations on the cyclical behavior of margins on the other hand credit risk is expected to be countercyclical and to raise margins so that default should help explain the countercyclicality of the latter based on these two observations our empirical methodology consists of two steps in a first step we test whether the negative and significant contemporaneous sample correlations between margins and a business cycle indicator are robust to the inclusion of controls related to monetary policy default risk and banking regulation results show it is so that there seems to be other channels through which fluctuations in the economy give rise to the observed countercyclicality of margins in a second step we look for these channels and offer several potential explanations for the observed behavior interest rate risk the economy s financial depth banks liquidity and capitalization and the share of total assets held by large banks all exert a significant impact on the behavior of margins over the business cycle these conclusions are consistent across alternative definitions of the margins and the business cycle indicator our work is linked to two strands of research in macroeconomics first our countercyclicality results are linked to the large literature on countercyclical markups in goods markets and its effects on aggregate demand started by rotemberg and saloner 1986 and rotemberg and woodford 1992 second price cost margins that vary endogenously and countercyclically in response to the state of the economy are a necessary condition for the existence of a financial accelerator as an amplifier of business fluctuations see for example bernanke and gertler 1989 and bernanke gertler and gilchrist 1998 therefore the countercyclical nature of price cost margins that we study here provides empirical support to the large body of literature in macroeconomic theory on this financial accelerator with price cost margins in the market for credit being countercyclical credit becomes more expensive in bad times firms may delay investment and production as a result and recessions may be exacerbated

monetary shocks in the g 6 countries is there a puzzle les auteurs cherchent a clarifier la dynamique du mecanisme de transmission de la politique monetaire l identification des chocs de politique monetaire est au coeur de ce genre d analyse divers chercheurs ont reussi recemment a isoler de tels chocs en imposant des restrictions de suridentification a des modeles vectoriels autoregressifs var

a quick and easy method for estimating switching costs abstract i develop and test a method for a quick and easy calculation of consumer switching costs among brands in a given industry the theory developed and tested here maps observed brands prices and market shares onto the switching costs which deter a consumer of a specific brand from switching to any other competing brand then i demonstrate how users switching costs can be directly calculated in two different industries a the israeli cellular phone market and b the finnish market for bank deposits this calculation method can be used to calculate switching costs in a wide variety of other industries such as airlines health services computers software telecommunications and more

expectations and commodity price dynamics the overshooting model monetary policy has important effects on agricultural commodity prices because though they are flexible other goods prices are sticky this paper formalizes the argument by applying the dornbusch overshooting model a decline in the nominal money supply is a decline in the real money supply in the short run it raises the real interest rate which depresses real commodity prices they overshoot their new equilibrium in order to generate an expectation of future appreciation sufficient to offset the higher interest rate these real effects which vanish in the long run also result from a decline in the money growth rate

identifying a liquidity effect in the japanese interbank market this article examines whether there was a liquidity effect in the japanese interbank market for reserves during the period from january 4 1996 to february 12 1999 according to the standard martingale model the only determinant of the overnight rate during the reserve maintenance period is the rate that is expected to prevail on the settlement day the last day of the period but this model ignores the fact that reserves are used for interbank payments if overdraft costs are introduced into banks reserve management problem the overnight rate will also depend on what this paper calls the reserve surplus which captures the liquidity effect of reserves we identify the liquidity effect by exploiting two institutional features first the overnight rates observed in the morning are forward rates for a contract to be settled later in the day second changes in reserves that are due to factors other than open market operations are rendered temporary through defensive operations by the open market desk we show that the liquidity effect can be identified from the regression of the spot forward differential on these temporary liquidity shocks our estimates indicate that there was a liquidity effect at least before the yamaichi debacle of november 1997

lock in and the costs of switching mainframe computer vendors what do buyers see this paper closely studies the historical experiences of computer users faced with incompatibility problems one key point throughout the discussion is that operating system compatibilities and application software were the principal source of switching costs the larger point here is that vendor specificity is partially a choice variable for the buyer it influences many facets of an organization as well as management and employee behavior foresighted users anticipate that daily decisions regarding programming practices and equipment maintenance influence the costs of switching during a later vendor decision buyers take a wide variety of actions both simple and complex most of the paper is concerned with documenting and analyzing how buyers change investments collect information manipulate bidding procedures and change managements practices either in anticipation of or in response to incompatibility problems copyright 1997 by oxford university press

what drives commodity prices this paper examines common forces driving the prices of 51 highly tradable commodities we demonstrate that highly persistent movements of these prices are mostly due to the first common component which is closely related to the us nominal exchange rate in particular our simple factor based model outperforms the random walk model in out of sample forecast for the us exchange rate the second common factor and de factored idiosyncratic components are consistent with stationarity implying short lived deviations from the equilibrium price dynamics in concert these results provide an intriguing resolution to the apparent inconsistency arising from stable markets with nonstationary prices

what to stabilize in the open economy we consider the question how best to maintain price level stability in an open economy and evaluate three possible policy choices a a constant money growth rate rule b a fixed exchange rate and c a policy of explicit commitment to a price level target in each case we assume that policy is conducted by injecting reserves into or withdrawing reserves from the banking system in evaluating the three regimes we adopt the criterion that the best policy should leave the least scope for indeterminacy and excessive economic volatility in a steady state equilibrium the choice of regime is largely irrelevant any steady state equilibrium under one regime can be duplicated by an appropriate choice of the control variable under any other regime however we show that the sets of equilibria under the three regimes are dramatically different when all countries follow the policy of fixing a constant rate of money growth there are no equilibria displaying endogenously arising volatility and there is no indeterminacy of equilibrium under a regime of fixed exchange rates indeterminacies and endogenously arising fluctuations are impossible if and only if the country with the low reserve to deposit ratio is charged with maintaining the fixed rate finally when one country targets the time path of its price level under very weak conditions there will be indeterminacy of equilibrium and endogenously arising volatility driven by expectations

continental national and sub national innovation systems complementarity and economic growth the purpose of this paper is to discuss the relevance of innovation systems to economic growth rates over the last two centuries the focus is on complementarity or lack of it between sub systems of society and on models of active learning in catching up economies the paper discusses variations in rates of growth of economic regions and the extent to which variations may be attributed to innovation systems the analysis is applied to britain in the 18th century the united states in the second half of the 19th century and the innovation systems of catching up countries in the 20th century