monetary policy with asset backed money we study the use of asset backed money in a neoclassical growth model with illiquid capital a mechanism is delegated control of productive capital and issues claims against the revenue it earns these claims constitute a form of asset backed money the mechanism determines i the number of claims outstanding ii the dividends paid to claim holders and iii the structure of redemption fees we find that for capital rich economies the first best allocation can be implemented and price stability is optimal however for sufficiently capital poor economies achieving the first best allocation requires a strictly positive rate of inflation in general the minimum inflation necessary to implement the first best allocation is decreasing in capital wealth

pricing free bank notes abstract during the pre civil war period us banks issued distinct private monies called bank notes a bank note is a perpetual risky non interest bearing debt claim with the right to redeem on demand at par in specie this paper investigates the pricing of this private money taking into account the enormous changes in technology during the period namely the introduction and rapid diffusion of the railroad a contingent claims pricing model for bank notes is proposed and tested using monthly bank note prices for all banks in north america together with indices of the durations and costs of trips back to issuing banks constructed from pre civil war travelers guides evidence is produced that market participants properly priced the risks inherent in these securities suggesting that wildcat banking was not common because of market discipline

strategic behavior of federal open market committee board members evidence from members forecasts abstract in this paper we use panel data to test whether federal open market committee fomc board members forecasts are rational rationality is rejected in the sense that forecasts by members are heavily dependent on previous own forecasts and last consensus made in fomc furthermore we reveal the strategic behavior of fomc board members forecasts by governors who always have voting rights agree much with the previous consensus of fomc members forecasts in contrast non governors who rotate voting rights exaggerate their forecasts they aggressively deviate their forecasts from previous consensus the former is herding behavior and the latter is anti herding behavior our results imply that individual members behave strategically governors want to present policy consistent forecasts to the congress and non governors utilize their forecasts to influence decision making in fomc

the joint production of confidence endogenous regulation and nineteenth century commercial bank clearinghouses during the nineteenth century deposits increased relative to bank notes c ausing increased information asymmetry problems in banking this pape r describes how bank clearinghouses lowered these costs by monitoring bank activities and establishing mechanisms of managerial control i n effect regulating bank behavior such actions enforced the loca l one to one exchange rate between deposits and specie clearinghouse s increased regulation during financial panics creating and enforcin g a risk sharing device loan certificates for addressing panic rela ted information problems this paper concludes that the market s capacity to control bank managers depends on the banking product mix and more generally on information costs copyright 1987 by ohio state university press

can currency competition work abstract can competition among privately issued fiat currencies work only sometimes and partially to show this we build a model of competition among privately issued fiat currencies a purely private arrangement fails to implement an efficient allocation even though it can deliver price stability under certain technological conditions although currency competition creates problems for monetary policy it is possible to design a policy rule that uniquely implements an efficient allocation

on the economics of private money abstract the application of laissez faire to the monetary system is a key ingredient of important proposals for monetary reform both new and old that seek to discipline government creation of money through competition this paper provides an overview of issues to be encountered in the construction of theoretical models of private monetary economies including consideration of market imperfections that have been hypothesized to arise in these systems further some descriptive history of the less regulated monetary systems of 19th century new york is undertaken with an emphasis on discussing the nature of market generated banking and monetary institutions in light of these critiques

currency competition a hayekian perspective on international monetary integration currency internationalization is examined from the vantage point of friedrich hayek s contributions in the 1970s compared with received commentaries in which only an idealized case for private money is attributed to hayek this paper underscores other dimensions of hayek s work on money and currency hayek s case for choice in currency draws on his theory of competition anticipates competition between government suppliers of fiat money accommodates many aspects of international monetary integration and embodies a distinctive approach to monetary independence choice of exchange rate regime and the transnationalization of currency hayekian predictions are outlined for future developments in currency competition

money is an experience good competition and trust in the private provision of money the interplay between competition and trust as efficiency enhancing mechanisms in the private provision of money is studied with commitment trust is automatically achieved and competition ensures efficiency without commitment competition plays no role trust does play a role but requires a bound on efficiency stationary inflation must be non negative and therefore the friedman rule cannot be achieved the quality of money can be observed only after its purchasing capacity is realized in this sense money is an experience good

competitive monies and the suffolk bank system a contractual perspective in recent years a number of monetary economists have begun to focus research on an old topic the economics of private money or free banking much of this literature is motivated by a sense that competitive markets may well prove superior to government regulation in coping with the problems inherent in a laissez faire monetary system noting this robert king in his recent survey paper suggests that the central focus of future research in this area must be the types of monetary institutions that the private market will deliver 10 123 by monetary institutions king presumably means the contractual mechanisms utilized in production and exchange relationships involving private money this paper examines one mechanism the so called suffolk bank system which the market did deliver in new england from around 1820 to just before the civil war while most historians have looked favorably on the suffolk mechanism almost all have mischaracterized the underlying rationale for the system in particular most analysts have interpreted the establishment of the suffolk bank s note redemption program as a response to gresham s law bad money drives out good money however the conditions of 19th century banking in new england and elsewhere as well prior to the establishment of the suffolk system rule out any application of gresham s law prior studies have also neglected the importance of evolutionary changes in the suffolk bank system over the first five years of its existence what we will label suffolk i was largely unsuccessful both in terms of its profitability and its capacity to control the behavior of the banks participating in the system several contract adaptations introduced in 1824 accounted for a sharp reversal in the fortunes of the suffolk bank system it is suffolk ii which has gained the accolades of bank historians ironically suffolk ii increased the prospects for a gresham s law kind of outcome of the sort emphasized by akerlof 1 however the contract structure of suffolk ii involved properties sufficient to allow that suffolk

the ban on indexed bonds 1933 77 in a recent article in this review nissan liviatan and david levhari attempt to explain the phenomenon that in spite of recent marked inflationary trends the important capital markets have not developed a significant free private enterprise market for cost of living linked bonds p 366 they note that the familiar theoretical complete dominance of indexed bonds over nonindexed bonds holds unambiguously only in an economy in which there are no nominal assets they demonstrate that borrowers may in theory insist on hedging the inflation risk on their nonindexed cash balances by issuing some nonindexed bonds at a discount that makes them attractive in spite of the risk they impose on lenders their model leads them to conclude that indexed bonds might not completely dominate nonindexed bonds however they do not claim that their model explains the phenomenon they set out to explain why is it that the free market to use their expression has come up with virtually no indexed bonds at all fortunately a simple explanation for the nonexistence of indexed bonds in the united states was provided two years

information learning and the stability of fiat money abstract we analyze the stability of monetary regimes in an economy where fiat money is endogenously created by the government information about its value is imperfect and learning is decentralized we show that monetary stability depends crucially on the speed of information transmission in the economy our model generates a dynamic on the acceptability of fiat money that resembles historical accounts of the rise and eventual collapse of overissued paper money it also provides an explanation of the fact that despite its obvious advantages the widespread use of fiat money is only a recent development

forecasting efficiency concepts and applications this article introduces the concept of forecast efficiency in which the forecast contains all information available at the time of the forecast empirical tests investigate weak efficiency where the information set is all past forecasts and where all forecast revisions and errors should be uncorrelated with past forecast revisions tests of macroeconomic energy consumption and oil price forecasts find a significant autocorrelation of forecast revisions with fifty of fifty one tests showing positive correlation of forecast revisions as opposed to zero correlation consistent with forecast efficiency copyright 1987 by mit press

bias in federal reserve inflation forecasts is the federal reserve irrational or just cautious abstract inflation forecasts of the federal reserve seem to have systematically under predicted inflation from the fourth quarter of 1968 until volcker s appointment as chairman and to systematically over predict it afterwards until the second quarter of 1998 furthermore under quadratic loss commercial forecasts seem to have information not contained in those forecasts to investigate the cause of this apparent irrationality this paper recovers the loss function implied by federal reserve s inflation forecasts the results suggest that the cost of having inflation above an implicit time varying target was larger than the cost of having inflation below it for the period since volcker and that the opposite was true for the pre volcker era once these asymmetries are taken into account the federal reserve s inflation forecasts are found to be rational

the influence of fomc member characteristics on the monetary policy decision making process abstract this paper provides new empirical evidence on a monetary policy committee with heterogeneous members whose decisions affect the efficacy of monetary policy it thereby provides a link between the literature on monetary policy committees and central bank monetary policy implementation through monetary rules using a novel dataset of the idiosyncratic characteristics of fomc members over the period from august 1979 to february 2014 the empirical findings show that characteristics such as education age and to a lesser extent work experience are not important in understanding the fomc decision making process instead the results point to the importance of time spent within the federal reserve system tenure on the fomc itself and the influence of the chair in shaping the decision making process the results are expected to have implications for the capacity of economic agents as well as various markets in the economy to more readily interpret public monetary policy information that reaches them this makes the monetary policy decision process less noisy and thus enhances the capability of agents and markets to attach the correct weight to this information

financial markets forecasts revisited are they rational stubborn or jumpy this paper evaluates professional forecasters behavior using a panel data of individual forecasts we find that i professional forecasts are behavioral and ii there exists a stock bond dissonance the forecasting behavior seems to be stubborn in the stock market but jumpy in the bond market even in the same country forecasting behavior is quite different by market

financial futures markets and tabular standards the goal of a monetary system that provides assurance against fluctuations in purchasing power is ancient one frequently suggested and repeatedly rediscovered proposal is to attain that result by linking the currency unit to a price index that device was proposed in the nineteenth century by w stanley jevons and by alfred marshall who named it a tabular standard it has been repeatedly rediscovered in marshall s version it required no governmental action except the issuance of a price index number something which has of course become widely prevalent individuals would simply in their own interest be led to make contracts specified not in terms of the nominal number of monetary units the number of dollars but in terms of the purchasing power equivalent of the present number of monetary units that is the contract would call for paying a given number of dollars multiplied by the ratio of a price index as of that date to the date on which the contract was entered into despite the theoretical attractiveness of this idea and the absence of any effective hindrance to its adoption it has never become popular it is a particular version of the generally attractive idea of widespread indexation yet indexation has been extensive only when inflation has been extremely high and variable as in some south american countries and israel and has generally fallen into disuse when inflation has been conquered the only area in which there are any large number of indexed contracts is the area of labor contracts and even here the use of indexation is by no means dominant and tends to rise and decline as inflation rises and declines

using survey data to correct the bias in policy expectations extracted from fed funds futures many studies estimate risk premiums on federal funds futures to extract monetary policy expectations by assuming that average forecast errors of the expectations are zero or that survey forecasts are good proxies for the expectations these assumptions however may fail due to an unanticipated declining trend in the federal funds rate and to survey respondents strategic behavior consequently the premiums estimated under these assumptions may be biased we propose a new method to estimate the premiums and find that the premiums have been often negative since 2000 which is generally consistent with the negative betas observed in the 2000s

loss function assumptions in rational expectations tests on financial analysts earnings forecasts abstract prior research concludes that financial analysts do not process public information efficiently in generating their earnings forecasts the ordinary least squares ols regression based tests used in prior studies assume implicitly that analysts face a quadratic loss function in contrast we argue that analysts likely face a linear loss function and hence try to minimize their absolute forecast errors we conduct and compare rational expectations tests using these two alternative loss functions we reproduce most prior findings of forecast inefficiency with ols regressions but find virtually no evidence of forecast inefficiency with least absolute deviation regressions where we explicitly assume a linear loss function

efficient allocation of a prize king solomon s dilemma abstract a planner is interested in allocating an indivisible good a prize to one of many agents in the economy his objective is to give the prize to the agent who values it most without any payments being made by the recipient the planner however does not know the identity of this agent while the agents themselves do this paper shows how the planner can construct simple multistage mechanisms with a unique subgame perfect equilibrium outcome at this outcome the agent who values the prize most gets it without any transfer of money being made by any of the agents or the planner

financial analyst characteristics and herding behavior in forecasting this study classifies analysts earnings forecasts as herding or bold and finds that 1 boldness likelihood increases with the analyst s prior accuracy brokerage size and experience and declines with the number of industries the analyst follows consistent with theory linking boldness with career concerns and ability 2 bold forecasts are more accurate than herding forecasts and 3 herding forecast revisions are more strongly associated with analysts earnings forecast errors actual earnings forecast than are bold forecast revisions thus bold forecasts incorporate analysts private information more completely and provide more relevant information to investors than herding forecasts

why are professional forecasters biased agency versus behavioral explanations professional forecasters may not simply aim to minimize expected squared forecast errors in models with repeated forecasts the pattern of forecasts reveals valuable information about the forecasters even before the outcome is realized rational forecasters will compromise between minimizing errors and mimicking prediction patterns typical of able forecasters simple models based on this argument imply that forecasts are biased in the direction of forecasts typical of able forecasters our models of strategic bias are rejected empirically as forecasts are biased in directions typical of forecasters with large mean squared forecast errors this observation is consistent with behavioral explanations of forecast bias

federal reserve information and the behavior of interest rates this paper tests for the existence of asymmetric information between the federal reserve and the public by examining federal reserve and commercial inflation forecasts it demonstrates that the federal reserve has considerable information about inflation beyond what is known to commercial forecasters it also shows that monetary policy actions provide signals of the federal reserve s information and that commercial forecasters modify their forecasts in response to those signals these findings may explain why long term interest rates typically rise in response to shifts to tighter monetary policy jel e52 e43 d82 asymmetric information between the federal reserve and the public is a phenomenon that is often posited but rarely tested numerous models of central bank behavior for example show that the existence of asymmetric information has important implications for the effectiveness of policy and the consequences of dynamic inconsistency yet there

endogenous supply of fiat money abstract we consider whether reputation concerns can discipline the behavior of a long lived self interested agent who has a monopoly over the provision of fiat money we obtain that when this agent can commit to a choice of money supply there is a monetary equilibrium where it never overissues we show however that monetary equilibria with no overissue do not exist when there is no commitment this happens because the incentives this agent has to maintain a reputation for providing valuable currency disappear once its reputation is high enough more generally we prove that in the absence of commitment overissue happens infinitely often in any monetary equilibrium we conclude by showing that imperfect memory can restore the positive result obtained with commitment

the suppression of state banknotes a reconsideration george selgin it is generally believed that congress in imposing a prohibitive 10 tax on state banknotes in 1865 made the public better off by doing away with inferior brands of currency while simultaneously helping finance the civil war by stimulating bond sales to national banks in truth the tax served neither purpose the true purpose of the 10 tax was not to enhance bond sales or to improve the quality of the currency but to offset the inflationary effects of greenbacks and national banknotes in the long run the public might have been better off had state banks retained their right to issue currency jel g21 n21 let us have a bank currency that will be recognized in the next town a currency that will be recognized in new york philadelphia boston new orleans chicago or any other part of the united states representative john f farnsworth illinois april 28 1864 congressional globe 38th congress 1st session 1934 i f the national banks with the great advantages which they enjoy cannot compete successfully with the state banks it simply shows that the latter subserve better the interests of the business community and should not be destroyed representative francis kernan new york february 16 1865 congressional globe 38th congress 2d session 833 i introduction during the civil war a 10 tax was placed on any issuance of notes of state chartered or incorporated banks deliberately forcing state banks out of the paper currency business and making the regulation and issuance of currency a prerogative of the federal government and of federally chartered national banks this paper reexamines the congressional decision to suppress state banknotes american monetary historians have conventionally viewed the decision as reflecting 1 the public s intolerable disgust with an unregulated currency hammond 1957 11 compare dunbar 1922 220 and 2 the government s desire to boost the demand for national bank charters so as to expand the market for its debt e g hughes and cain 1998 373 74 dowd 1992 230 i plan to argue that neither view accounts adequately for the 10 tax the first view in particular begs important questions that have gone unaddressed if state banknotes were clearly inferior to national banknotes why was a prohibitive tax needed to drive them out of circulation just how were consumers supposed to benefit from having their choices restricted i explore several responses to these questions and ultimately conclude that consumers considered some state banknotes to be just as desirable as their national bank counterparts i argue that the 10 tax served not to overcome any banknote market failure but to force the withdrawal of relatively high quality state banknotes i then proceed to show that the tax was not needed to secure adequate bond sales to national banks proponents of the tax were striving not to increase the number of applications for national bank charters but to limit growth in the aggregate money stock i conclude by suggesting that because state banks of issue could have accommodated market demands that national banks failed to satisfy consumers might have been better served had state banknotes been allowed to survive ii the chase plan when the first shots of the american civil war were fired at fort sumter the paper currency of the united states consisted of over 200 million in banknotes issued by nearly 1 500 state chartered banks the quality of these banknotes varied according to their issuers management and regulatory environment 1 some banknotes circulated at par only near their source and at fluctuating discounts elsewhere so that persons carrying notes from state to state risked incurring currency exchange losses of the sort borne by international travelers today a few were subject to especially heavy discounts or were refused altogether because their issuers solvency was in question

friedman versus hayek on private money review essay abstract few areas of economic activity can claim as long and unanimous a record of agreement on the appropriateness of governmental intervention as the supply of money benjamin klein 1974 p 423

has government any role in money abstract recent interest in monetary reform has been sparked by the emergence of a world irredeemable paper money system in light of this interest we review the current validity of four good reasons friedman advanced in 1960 to rationalize government intervention we conclude that the forces that produced government involvement in the past will persist deregulation of financial intermediaries is desirable on grounds of market efficiency though it is an open question whether government should continue as lender of last resort we expect that the present world fiat money standard will neither degenerate into hyperinflation nor revert to a commodity standard

bank runs in the free banking period free banks in the united states issued private banknotes without discretionary restriction of entry previous research suggests explanations for noteholders relatively large losses and the substantial number of banks that closed the authors examine these hypotheses and the hypothesis that contagious runs were important the evidence provides no support for the importance of wildcat banking due to par versus market valuation of bond reserves episodic but not general support for the importance of declining bond prices and support for contagion effects and contemporaries knowledge of them with little or no impact on the number of banks that closed copyright 1994 by ohio state university press

biases in macroeconomic forecasts irrationality or asymmetric loss empirical studies using survey data on expectations have frequently observed that forecasts are biased and have concluded that agents are not rational we establish that existing rationality tests are not robust to even small deviations from symmetric loss and hence have little ability to tell whether the forecaster is irrational or the loss function is asymmetric we quantify the exact trade off between forecast inefficiency and asymmetric loss leading to identical outcomes of standard rationality tests and explore new and more general methods for testing forecast rationality jointly with flexible families of loss functions that embed quadratic loss as a special case an empirical application to survey data on forecasts of nominal output growth demonstrates the empirical significance of our results and finds that rejections of rationality may largely have been driven by the assumption of symmetric loss

interpreting new evidence about china and u s silver purchases abstract this paper offers a reinterpretation of the influence on china of america s silver policy in the early 1930 s recently compiled evidence about events in china are described and interpreted in light of a model of free banking under a commodity standard our interpretation is that the u s silver purchase program did not set off a chain of bad economic events which eventually forced china off silver and onto a fiat standard rather china was forced off silver by its own government which wanted to make itself the beneficiary of the capital gain associated with the appreciation of silver and to relieve itself of the restrictions that are imposed on government finance by a commodity standard

liquidity banking and bank failures a multiperiod model with risk neutral agents is constructed in which a liquidity problem arises in an equilibrium with decentralized tradin g in capital which banking institutions are able to alleviate depos it contracts provide for early withdrawal banks hold debt and agent s who borrow from banks hold compensating balances institutional col lapse or a state of the world when bank failures are experienced is associated with a high demand for liquidity low output and a lower than average level of welfare bank failure is symptomatic of a part icular state of endowments preferences and technology and governme nt intervention is undesirable copyright 1988 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the characteristics of a monetary economy a keynes schumpeter approach mainstream monetary theory considers money only as an instrument meant to facilitate trading without having any effect on income or on the evolution of the economic system the aim of this paper is to elaborate a monetary theory capable of supporting the thesis of money non neutrality based on the arguments developed by keynes and schumpeter the synthesis of the theories of these two great economists will be formulated starting from the two points which are common in the views of keynes and schumpeter first in contrast with mainstream theory keynes and schumpeter state that the diffusion of a fiat money induces a radical modification into the way in which the economic system works second when keynes and schumpeter describe the reasons why money and financial aggregates are not neutral they highlight the fundamental role of the credit market and of banks in contrast with the mainstream theory they do not consider the credit market as the mirror image of the goods market

anchoring effects evidence from art auctions in order to separate anchoring where an irrelevant message has an effect on the outcome from rational learning where past prices are not irrelevant because they may be used to estimate unobservable quality we use the following strategy we first develop a hedonic prediction of price for both the current sale e g the 2006 sale and the previous sale these hedonic predic tions are based on observable characteristics of each painting and an index of overall prices we then regress actual sale price on our hedonic prediction on the difference between the actual price in the previous sale and our hedonic prediction this expression tests for anchoring and on the difference between the actual price in the previous sale and our hedonic prediction of price in the previous sale this expression controls for unobservable characteristics the test for anchor ing is the extent to which the actual price in the previous sale affects the current sale price we can identify anchoring from other effects because the demand for art which is captured by the average overall price index changes over time whereas the unobservable component of qual ity is assumed to remain constant between auctions this allows us to control for unobserved quality characteristics as long as something drastic has not happened between sales such as a painting has been deemed a fake which is a very rare occurrence the assumption of constant quality is a realistic one

milton friedman s monetary economics and the quantity theory tradition abstract this article provides a selective review of milton friedman s contributions to monetary economics focusing on five areas in particular the demand for money the joint historical and empirical work with anna j schwartz the theoretical and empirical analyses of the phillips curve monetary policy and monetary dynamics

foreign exchange rate expectations micro survey data this paper analyzes the panel data of biweekly surveys on the yen dollar exchange rate expectations of forty four institutions for two years and contains four major findings first market participants are heterogeneous that is significant individual effects exist in their expectation formation second the individual effects have a characteristic of wishful expectations exporters expect yen depreciation and importers expect yen appreciation relative to others third many violate the rational expectations hypothesis fourth forecasts with long horizons show less yen appreciation than those with short horizons cross equation constraints implied by the consistency of the forecast term structure are strongly rejected in the data copyright 1990 by american economic association

financial structure and aggregate economic activity an overview this paper surveys literature that explores the possible links between the financial system and aggregate economic behavior the survey is in two parts the first reviews the traditional work and the second discusses new research copyright 1988 by ohio state university press

do fomc members herd abstract we show that growth and unemployment forecasts submitted by individual fomc members do not exhibit herding behavior while the inflation forecasts show strong evidence of anti herding interestingly anti herding is more important for non voting members than for voters

private production of scrip money in the isolated community this paper examines the appearance of one type of privately produced currency which had the generic label scrip this money appeared at widely different times and places in the united states between 1820 and 1940 in spite of federal laws prohibiting its issue the most sophistic ated and best developed example of scrip seems to have occurred in th e coal mining regions of appalachia especially in west virginia thi s experience and its implications for monetary behavior are examined here copyright 1987 by ohio state university press

asymmetric information and optimal bank reserves one traditional argument in favor of bank reserve requirements holds that since a b ank and its depositors are asymmetrically informed as to the bank s reserve position and its portfolio the bank will hold too few reserves and too risky a port folio this being the case presumably a central banking authority is equipped t o impose and to monitor a minimal reserve requirement yielding a pareto superior outcome this paper analyzes this position in the context of a formalmodel and shows that at least for some parameters of the model there is such a case for a minimal reserve requirement copyright 1987 by ohio state university press

herding among security analysts the paper shows that the buy or sell recommendations of security analysts have a signi cant positive in uence on the recommendations of the next two analysts this in uence can be traced to short lived information in the most recent revisions in contrast the in uence of the prevailing consensus is not stronger if the consensus accurately forecasts subsequent stock price movements this indicates consensus herding consistent with models in which analysts herd based on little information the consensus also has a stronger in uence when market conditions are favorable the resulting poorer information aggregation could cause bull markets to be intrinsically more fragilea e g bikhchandani et al j political economy 100 5 1992 992 1026 2000 elsevier science s a all rights reserved jel classixcation g11 g14 g24

the optimal timing of procurement decisions and patent allocations in a patent race social incentives and private incentives may sometimes coincide and at other times diverge too many researchers remain in the race if the social planner cannot determine what stage the researchers have achieved this informational constraint can result in a socially suboptimal outcome we construct a mechanism in which a planner exploits the researchers private information to determine when and to whom to allocate rights to pursue the final prize this mechanism does not require any payments and therefore will not distort earlier investment incentives it is solvable by the iterative elimination of dominated strategies

novelty and disclosure in patent law the stringency of the novelty requirement in patent law affects the pace of innovation because it affects the amount of technical information that is disclosed among firms it also affects ex ante profitability of research we compare weak and strong novelty requirements from the standpoint of social efficiency we ask how our answer depends on the rule that determines which firm gets a patent when two firms have patents pending on the same technology the possible rules are first to invent which applies in the u s and first to file which applies everywhere else

explaining the demand for free bank notes abstract this paper explains why the risky notes of banks established during the free banking era 1837 1863 were demanded even when relatively safe specie gold and silver coin was an alternative free bank notes were demanded because they were priced to reflect the expected value of their backing the empirical evidence supports this explanation specifically in new york wisconsin and indiana the expected value of backing was sufficient for free bank notes to circulate at par which they did in minnesota the backing for notes was very poor they exchanged well below par being treated as small denomination securities

strategic delay and the onset of investment cascades i study the phenomenon of herd behavior in a framework where agents can endogenously choose both the actions and the timing of their actions i assume that agents may have privately known quality and content of information a unique symmetric equilibrium in pure strategies is proved to exist and characterized in its closed form an investment cascade always occurs in the equilibrium and a strategic delay is shown to exist before the sudden onset of the investment cascade i also examine the loss of welfare from delay and information cascade

evaluating the efficiency of the fomc s new economic projections since 2007 fomc policymakers have been publishing detailed numerical projections of macroeconomic series over the next three years by testing whether the revisions to these projections are unpredictable i find that fomc s efficiency is generally accepted for inflation but often rejected for real economic variables notably for the unemployment rate the rejection is due to the strong autocorrelation of revisions which may reflect information rigidity of fomc s unemployment projections the joint efficiency of the entire projection is accepted in most cases

the resource cost of irredeemable paper money since 1971 no major currency has a formal link to a commodity for the first time in history every currency is wholly irredeemable not as a temporary expedient but as a permanent matter monetary economists have generally treated irredeemable paper money as involving negligible real resource costs compared with a commodity currency to judge from recent experience that view is clearly false as a result of the decline in long term price predictability a key question for the future is what if any substitute for a commodity standard will emerge as a long term anchor for the price level

the transition from barter to fiat money how did it become possible to exchange apparently valueless pieces of paper for goods this paper provides an equilibrium account of the transition between barter and fiat money regimes the explanation relies on the intervention of a self interested government that must be able to promise credibly to limit the issue of money to achieve credibility the government must offset the benefits of seigniorage by internalizing some of the macroeconomic externalities generated by the issue of fiat money the government s patience and the extent of its involvement in the economy are key determinants of whether the transition can be accomplished copyright 1995 by american economic association

scottish banking before 1845 a model for laissez faire during the free banking era in eighteenth and early nineteenth century scotland there were a number of legal restrictions affecting the evolution of the system scottish banking was characterized by restrictions on small denomination and interest bearing notes there were also restrictions inhibiting the development of capital markets and entry into banking furthermore the bank of england operated as a shadow central bank for the scottish system these considerations call into question the use of the scottish banking experience as the appropriate model for laissez faire and as evidence against the legal restrictions theory of money and the new monetary economics copyright 1989 by ohio state university press

a new data set on monetary policy the economic forecasts of individual members of the fomc this paper describes a new data set of the forecasts of output growth inflation and unemployment prepared by individual members of the federal open market committee the paper discusses the scope of the data set possibilities for extending it and some potential uses it offers a preliminary examination of some of the cross sectional features of the data