bond indenture provisions and the risk of corporate debt abstract this paper examines the effect of alternative bond indenture provisions on the allocation of risk among the firm s claimants the approach taken here differs from that of earlier studies in that risk allocation is examined while the firm s leverage in market value terms is held constant in this context four indenture provisions are examined 1 the time to maturity 2 the promised payment schedule 3 financing restrictions and 4 priority rules it is concluded that risk is transferred from stockholders to bondholders as the time to maturity and promised payment increase appropriately furthermore substitution of longer term debt for an equal amount of shorter term debt also increases the risk to bondholders while decreasing the risk to stockholders the analysis shows that a coupon bond can be represented by a unique discount bond with the same risk and value this permits the characterization of the effective maturity of a risky debt issue a concept analogous to the stochastic duration of a default free coupon bond these results are shown to be independent of the means used to finance the debt issue finally it is concluded that the relative risk associated with different bonds issued by the same firm cannot be determined by the structure of priority rules alone it is also necessary to consider the timing of the promised payments compared to that of the other debt issues in the firm s capital structure

arbitrary values good causes and premature verdicts abstract this paper offers an alternative interpretation of the conclusions kahneman and knetsch propose based on two contingent valuation cvm surveys the evaluation argues that while framing is important to cvm estimates the design implementation and empirical findings reported from these surveys do not support their judgments moreover with the exception of temporal embedding conventional economic descriptions of individual behavior can explain the response patterns that they suggest are at variance with standard value theory

multiple equilibrium overnight rates in a dynamic interbank market game abstract we analyse a two period model of the interbank market i e the market where banks trade liquidity we assume that banks do not take the interbank interest rate as given but instead negotiate on interest rates and transaction volumes with each other the solution concept applied is the shapley value we show that there are a multiplicity of average equilibrium interest rates of the first period so that the average interest rate in this period does not convey any information on the expected liquidity situation on the interbank market as the banks control not only the transaction volumes but also the interest rates they can leave the interest rates constant and adjust the transaction volumes when for example a liquidity deficit becomes more likely

valuing mortality risk in kuwait stated preference with a new consistency test we report stated preference estimates of the value per statistical life vsl for kuwaiti citizens obtained using an innovative test to identify respondents whose survey responses are consistent with economic theory the consistency test requires that an individual report strictly positive willingness to pay wtp for mortality risk reduction and that his responses to binary choice valuation questions for two risk reductions be consistent with the theoretical requirement that wtp is less than but close to proportional to the change in risk reduction our estimates of vsl 18 32 million are approximately two to four times larger than values accepted for the united states these values may reflect cultural factors as well as the substantially larger disposable income of kuwaiti citizens

the exploitation of relationships in financial distress the case of trade credit this paper develops optimal pricing lending and renegotiation strategies for companies in relationships where one firm is highly dependent on the other long term trade creditor firm relationships induce dependent trade creditors to grant more concessions in debt renegotiations than nondependent creditors anticipating these larger renegotiation concessions not only do less financially stable firms prefer trade credit but all firms agree to pay a higher interest rate for trade credit the model also explains the existence of teaser interest rates and convenience classes findings are consistent with those of the relationship lending literature

willingness to pay and the distribution of risk and wealth willingness to pay wtp most economists believe is an appropriate benefits metric for government expenditure and regulatory policies that reduce risks to human life it depends however on the distribution of risk and wealth currently society s expenditures overemphasize concentrated risks say after the fact treatment as opposed to prevention a dead anyway effect complements excess attention to intense interests in explaining this our normative criterion for spending on risk reduction is what a rational albeit uninsured individual confronting lotteries on future risks to life and wealth would choose for himself this requires correcting wtp to eliminate the dead anyway effect but continues to reflect that wealth enhances the utility of living

the determinants of bank interest margins theory and empirical evidence this paper has developed a model of bank margins or spreads in which the bank is viewed as a risk averse dealer it was demonstrated that an interest spread or margin would always exist and that this was the result of transactions uncertainty faced by the bank moreover it was shown that this pure spread depended on four factors the degree of managerial risk aversion the size of transactions undertaken by the bank bank market structure and the variance of interest rates the model implied that liability and asset structures had to be analyzed together since they were directly interrelated through transactions uncertainty it was shown that because of this transactions uncertainty hedging behavior was perfectly rational within an expected utility maximizing framework extending the model from a structure with one kind of loan and deposit to loans and deposits with many maturities should lead to further interesting insights into margin determination especially as portfolio effects may become apparent

anomalies and stated preference techniques a framework for a discussion of coping strategies this paper introduces a symposium on the issue of how stated preference sp research can best cope with anomalies i e systematic deviations from the predictions of standard economic theory in survey responses it proposes a framework for constructive debate recognising i the legitimate aspirations of sp research ii the relevance of evidence from sources other than best practice sp and iii the precautionary value of investigating strategies for coping with suspected anomalies even if questions about the robustness of anomalies have not been finally resolved five alternative coping strategies discussed in more detail in the symposium are briefly introduced

trade credit and informational asymmetry commonly used trade credit terms implicitly define a high interest rate that operates as an efficient screening device where information about buyer default risk is asymmetrically held by offering trade credit a seller can identify prospective defaults more quickly than if financial institutions were the sole providers of short term financing the information is valuable in cases where the seller has made nonsalvageable investments in buyers since it enables the seller to take actions to protect such investments traditional explanations for the widespread use of trade credit fall into two categories the financing motive holds that capital market imperfections enable sellers to finance buyer purchases at lower cost than financial institutions ferris 4 argues that trade credit provides payment flexibility and thus reduces the overall need for buyers and sellers to maintain precautionary balances emery 3 contends that noncompetitive rents of financial institutions can be circumvented by sellers and buyers through provision of trade credit however the financing motive is not sufficient to explain why small suppliers offer trade credit the wide cross sectional variation in terms or why large buyers often take the prompt payment discount late a second set of explanations is best described as pricing motivations for trade credit provision nadiri 10 argues that availability of alternative payment terms can increase product demand but does not indicate why the offered terms could not be duplicated by financial institutions schwartz and whitcomb 14 argue that trade credit is used to circumvent robinson patman and similar prohibitions on price discrimination the correctness of this position depends on the charge to users of trade credit exceeding the cost of provision by the seller although the explanation is possible in principle an empirical question remains as to why variations in actual credit terms appear to be based on product market rather than buyer characteristics the literature also contains analyses of the impact of changing macroeconomic conditions on trade credit terms and aggregate credit flows schwartz 13 for example employs a financing motive for trade credit to conclude that restrictive monetary policy can be partly mitigated by liberalization of trade credit terms by firms with relatively easy access to capital markets however a microeconomic

financial development bank discrimination and trade credit non state owned firms in china grow tremendously with limited support from banks this provides a unique setting to test how firms in a country with poorly developed financial institutions fund their prosperous growth opportunities this paper compares the use of an important non formal financial channel trade credit between state and non state owned firms in china we find that compared to state owned firms non state owned firms use more trade credit we further show that this higher usage is primarily for financing rather than transactional purposes the results suggest that in a country with a poorly developed formal financial sector firms can support their growth through non formal financial channels that largely rely on implicit contractual relation

the end of the month as a preferred habitat a test of operational efficiency in the money market this paper argues that an aggregate preferred habitat for investors exists on or about the last day of the calendar month due to standardizations in the nation s payments system resulting in a concentrated flow of funds on this date thus equilibrium yield discounts are predicted for securities maturing on such dates empirical tests on monthly and daily treasury bill data support the principal hypothesis as well as several ancillary hy potheses the results have implications for treasury debt management for the short term cash and debt management practices of businesses and banks and for the empirical esti mation of daily weekly or monthly return premiums on risky securities

hypothetical versus real willingness to pay in the health care sector results from a field experiment abstract we conducted a field experiment comparing hypothetical and real purchase decisions for a pharmacist provided asthma management program among 172 subjects with asthma subjects received either a dichotomous choice contingent valuation question or were given the opportunity to actually enroll in the program three different prices were used us 15 40 and 80 in the hypothetical group 38 of subjects said that they would purchase the good at the stated price but only 12 of subjects in the real group purchased the good p 0 000 we cannot however reject the null hypothesis that definitely sure hypothetical yes responses as identified in a follow up question correspond to real yes responses we conclude that the dichotomous choice contingent valuation method overestimates willingness to pay but that it may be possible to correct for this overestimation by sorting out definitely sure yes responses

an instantaneous control model of bank reserves and federal funds management abstract empirical evidence indicates that large banks are generally net buyers of federal funds while small banks tend to be net sellers asymmetric information bank monopoly power or risk aversion arguments have been offered for this phenomenon however these models do not address the close link between bank reserves and federal funds purchases as alternative means of liquidity management our stochastic control model focuses on this link and has three main implications 1 it analyzes interaction between the above mentioned influences 2 it identifies three additional reasons for banks federal funds activity and 3 it examines the transmission of monetary policy in a dynamic framework

a micro model of the federal funds market this paper demonstrates that valuable insights into the determination of federal funds rates can be gained through modeling the micro decisions of market participants fed fund demand functions are derived for different bank valuation functions and several implications are discussed specifically it is i possible to rationalize the observation that large banks are net purchasers and small banks net sellers of fed funds ii to explain the positive spread of fed funds rates over other short term money market rates and iii to link the size of this spread to the federal reserve s underlying monetary policy strategy

a general equilibrium money and banking paradigm in this paper we propose and analyze a new paradigm for monetary analysis that is considerably richer than the standard money multiplier models found in the literature a general equilibrium approach to financial assets is developed that leads directly to a multiplier system that transcends the traditional dependence on demand deposits and is easily amenable to exposition and manipulation the model incorporates financial innovation and regulatory changes easily and allows for the general equilibrium effects of the variation in financial ratios that result from induced movements in income interest rates or prices the current analysis differs from traditional multiplier presentations in two distinct ways first the traditional approach to monetary expansion and multiplier analysis relies upon the ratios of various financial assets to demand deposits over the last decade decreased financial regulation and subsequent innovation have substantially changed the nature of depository institution liabilities and their substitutability with demand deposits this has led to the reduction in emphasis on demand deposits per se and an increasing dependence upon transaction accounts other than demand deposits thrift institutions now accounts automatic transfer accounts and overdrafts money market mutual funds and overnight repurchase agreements have made the dependence on demand deposits as a basis for multiplier analysis somewhat obsolete and artificial the model developed here can accommodate any number of transaction assets by specifying general asset demand ratios relative to total household wealth the second and more fundamental way in which our model differs from existing ones is the way in which it weds general equilibrium considerations with simple multiplier analysis the traditional approach to multipliers is to assume that any ratio between two financial assets vying for a role in the aggregate wealth portfolio is exogenous and invariant to other variables in today s economy this seems rather inappropriate any regulatory or asset preference change will result in changes in the endogenous variables in the economy which will further impact financial demands the exogeneity of asset preferences and reserve ratios is no

discount window borrowing and federal reserve operating regimes i introduction the borrowing behavior of banks at the federal reserve s discount window is a component of most models of the monetary sector including the model used by the federal reserve 1 as several researchers have noted 2 however the policy importance of accurate predictions of borrowing behavior depends on the federal reserve s short run operating procedure if the federal reserve uses a federal funds rate target to control money growth as it did in the 1970s inaccurate predictions of borrowing behavior have no effect on money supply growth if the federal reserve uses a nonborrowed reserves target as is usually assumed for the october 1979 to october 1982 period or a borrowed reserves target as was used after october 1982 then poor predictions of bank borrowing are a potentially significant source of errors in controlling money 3 given the importance of accurate borrowing predictions to monetary control under current short run operating procedures admissions by the federal reserve that its borrowing equation poorly explains recent borrowing behavior are cause for concern 4 part of the problem may lie with inadequate allowance for differences in bank borrowing behavior under different operating procedures the choice of operating procedure determines not only the importance of accurate borrowing predictions but also affects borrowing behavior by affecting the stochastic process characterizing the spread between the federal funds rate and the discount rate 5 the standard model for aggregate borrowing typified by goldfeld and kane 1966 assumes a positive relationship between borrowing and the spread the optimizing model of individual bank borrowing decisions of goodfriend 1983 used by cosimano 1988 and dotsey 1989 among others suggests that borrowing also depends negatively on banks expectations about future levels of the spread specifically goodfriend s model of risk neutral banks predicts a larger impact on borrowing of a spread change that banks expect to be temporary than one that banks expect to be more persistent to the extent that banks predict future spreads using an autoregressive model changes in the stochastic process characterizing the spread should change the impact realizations of the spread have on borrowing 6 moreover if banks are risk averse changes in the operating procedures that produce less predictable spreads may affect both banks borrowing and excess reserve behavior 7 because the spread s stochastic behavior depends on the federal reserve s operating procedure borrowing behavior in turn should depend on the federal reserve s operating procedure consequently the federal reserve should not assume that the borrowing equation in its model is invariant to changes in operating procedure as goodfriend notes such an assumption is another example of the lucas critique bryant 1983 and dutkowsky and foote 1988 show that borrowing equations estimated during the period when the federal reserve targeted the federal funds rate produce poor forecasts of borrowing after the regime change of 6 october 1979 these papers do not however provide evidence on how the borrowing equation changed after october 1979 one purpose of this paper is to investigate whether bank borrowing behavior changed with changes in federal reserve operating procedures leading to estimated borrowing equations that differ significantly under different operating procedures in addition to the changes in operating procedures the federal reserve also changed the reserve accounting rules in february 1984 replacing lagged reserve accounting with contemporaneous reserve accounting although the effect of this switch on bank reserve management is difficult to predict the increased uncertainty about reserve needs and the decrease in information about the aggregate demand for reserves make it plausible that banks became more conservative affecting their excess reserve behavior and their discount window borrowing

discipline and liquidity in the interbank market using 20 years of panel data i demonstrate that high risk banks have consistently paid more than safe banks for interbank loans and have been less likely to use these loans as a source of liquidity the economic importance of this effect was relatively small until the mid 1990s when regulatory and institutional changes began to impose more of the costs of bank failure on uninsured creditors subsequently interbank market price discipline roughly doubled and risk based rationing effects increased by a factor of six in imposing this discipline lenders seem to care most about credit risk at borrowing institutions

money creation and the shadow banking system many explanations for the rapid growth of the shadow banking system in the mid2000s focus on money demand this paper asks whether the short term liabilities of the shadow banking system behave like money we rst present a simple model where households demand money services which are supplied by three types of claims deposits treasury bills and asset backed commercial paper abcp the model provides predictions for the price and quantity dynamics of these claims as well as the behavior of the banking system in terms of issuance and the monetary authority in terms of open market operations consistent with the model the empirical evidence suggests that the shadow banking system does respond to money demand

the effects of shifts in monetary policy and reserve accounting regimes on bank reserve management behavior in the federal funds market abstract this paper looks at the effects on fed fund rates and fed fund purchasing behavior of large banks resulting from i the 1982 regime switch from non borrowed to borrowed reserve targeting by the fed and ii the 1984 switch from lagged to almost contemporaneous reserve accounting cra whether we analyse changes in the interest rate or quantity dimensions the shift in monetary policy targets appeared to have had a more profound effect on the market for bank reserves than the shift in reserve accounting regime these results therefore tend to support the contention that a shift to cra by itself will have little effect on bank reserve management behavior unless combined with its logical counterpart a total reserves target

trade credit in economic fluctuations and its impact on corporate performance a panel data analysis from china trade credit is an important auxiliary measure to complete transactions in supply chains and it is also an important source of short term financing for companies this paper uses panel data for ch

law finance and firm growth we investigate how differences in legal and financial systems affect firms use of external financing to fund growth we show that in countries whose legal systems score high on an efficiency index a greater proportion of firms use long term external financing an active though not necessarily large stock market and a large banking sector are also associated with externally financed firm growth the increased reliance on external financing occurs in part because established firms in countries with well functioning institutions have lower profit rates government subsidies to industry do not increase the proportion of firms relying on external financing the corporate finance literature suggests that market imperfections caused by conflicts of interest and informational asymmetries between corporate insiders and investors constrain firms in their ability to fund investment projects the magnitude of these imperfections depends in part on the effectiveness of the legal and financial systems because these systems differ across countries the literature implies that there should exist systematic cross country differences in firms ability to obtain external capital to finance investment in this paper we examine whether the underdevelopment of legal and financial systems does prevent firms in some countries from investing in potentially profitable growth opportunities in particular we focus on the use of long term debt or external equity to fund growth see our earlier work demirgut kunt and maksimovic 1996a which compares firms financial structures in developed and developing countries and finds the greatest difference to be in the provision of long term credit we estimate a financial planning model to obtain the maximum growth rate that each firm in our thirty country sample could attain without access to long term financing we then compare these predicted growth rates to growth rates realized by firms in countries with differing degrees of development in their legal and financial systems our approach enables us to identify specific characteristics of the legal and financial systems that are associated with long term financing of firm growth thus we provide a micro level test of the hypoth

cognitive ability and scale bias in the contingent valuation method this study investigates whether or not the scale bias found in contingent valuation cvm studies on mortality risk reductions is a result of cognitive constraints among respondents scale bias refers to insensitivity and non near proportionality of the respondents willingness to pay wtp to the size of the risk reduction two hundred swedish students participated in an experiment in which their cognitive ability was tested before they took part in a cvm study asking them about their wtp to reduce bus mortality risk the results imply that wtp answers from respondents with a higher cognitive ability are less flawed by scale bias

day of the week effects in federal funds rates further empirical findings abstract we extend the spindt and hoffmeister 1988 model of the daily operation of an institution s federal reserve account to show strong inter and intra period incentives to borrow and lend in the federal funds market at predictable points in the 10 trading day settlement period using intraday high and low prices we demonstrate changes in the federal funds rate consistent with our model s predictions we provide evidence of predictable changes in the variance of fed funds returns on a daily and intraday basis our analysis confirms that federal reserve requirements result in daily and intraday variances which are not constant

the micromechanics of the federal funds market implications for day of the week effects in funds rate variability the federal funds rate arguably is the most important interest rate in the u s capital market because it plays a central role in monetary policy and the term structure this paper examines the micromechanics of the funds market we show that in a continuous market with asynchronous trading regulatory constraints and accounting conventions that focus agents attention on discrete time instants have important implications for the dynamics of trading activity and realized market prices we also exhibit a model of the market that explains observed regularities in the intertemporal behavior of the funds rate

contingent valuation controversies and evidence contingent valuation cv has become one of the most widely used non market valuation techniques cv s prominence is due to its flexibility and ability to estimate total value including passive use value its use and the inclusion of passive use value in benefit cost analyses and environ mental litigation are the subject of a contentious debate this paper discusses key areas of the debate over cv and the validity of passive use value we conclude that many of the alleged problems with cv can be resolved by careful study design and implementation we further conclude that claims that empirical cv findings are theoretically inconsistent are not generally supported by the literature the debate over cv however has clarified several key issues related to nonmarket valuation and can provide useful guidance both to cv practitioners and the users of cv results

sequencing and nesting in contingent valuation surveys abstract the term embedding is ill defined and has been applied to distinct phenomena some predicted by economic theory and others not this paper lays out a theoretical framework for looking at these phenomena and provides a set of well defined terms included is a discussion of survey design problems which may induce spurious evidence in favor of the hypothesis that respondents are insensitive to the scope of the good being valued an empirical example of the component sensitivity is provided this test rejects the hypothesis that respondents are insensitive to the scope of the good being valued

the impact of real options on willingness to pay for mortality risk reductions public investments are dynamic in nature and decision making must account for the uncertainty irreversibility and potential for future learning in this paper we adapt the theory for investment u

bank size collateral and net purchase behavior in the federal funds market empirical evidence differences between large and small banks net purchase behavior in the uncollaterized federal funds and collateralized repurchase agreements markets are documented the larger a bank s asset size the larger ceteris paribus its federal funds purchases the threshold asset size is in the region of 1 billion to 2 5 billion for any size class banks located in major banking centers are more likely to be net federal funds purchasers than are banks located outside money centers in the collateralized repurchases agreements market there appears to be no size of locational discrimination indeed the smallest banks are the largest net purchasers as a fraction of assets of funds on the repurchases agreements market copyright 1989 by the university of chicago

trade dynamics in the market for federal funds we develop a model of the market for federal funds that explicitly accounts for its two distinctive features banks have to search for a suitable counterparty and once they have met both parties negotiate the size of the loan and the repayment the theory is used to answer a number of positive and normative questions what are the determinants of the fed funds rate how does the market reallocate funds is the market able to achieve an efficient reallocation of funds we also use the model for theoretical and quantitative analyses of policy issues facing modern central banks

efficiency and bargaining power in the interbank loan market using detailed transactions level data on interbank loans we examine the efficiency of an overnight interbank lending market and the bargaining power of its participants our analysis relies on the equilibrium concept of the core which imposes a set of no arbitrage conditions on trades in the market for canada s large value transfer system we show that although the market is fairly efficient systemic inefficiency persists throughout our sample the level of inefficiency matches distinct phases of both the bank of canada s operations as well as phases of the 2007 8 financial crisis we find that bargaining power tilted sharply toward borrowers as the financial crisis progressed and surprisingly toward riskier borrowers

turn of month evaluations of liquid profits and stock returns a common explanation for the monthly and january effects this paper presents and tests a hypothesis that the standardization of payments in the united states at the turn of each calendar month generally induces a surge in stock returns at the turn of each calendar month the hypothesis also asserts that returns generally will be greater following the month of december and will vary inversely with the stringency of monetary policy empirical results using stock index returns for 19691986 support the hypothesis this analysis provides an explanation for the previously documented monthly effect in stock returns and a partial explanation for the january effect in a recent paper ariel 1987 documents an important empirical regularity in stock returns and terms it the monthly effect using value weighted and equally weighted daily stock index returns for the period 1963 1981 ariel shows that virtually all of the cumulative return on these indexes is realized on ten consecutive trading days of the calendar month beginning with the last trading day of the month and extending through the first nine trading days of the following month ariel considers various explanations for this phenomenon but none sufficed to explain the observed empirical regularity p 174 more recently lakonishok and smidt 1988 examine returns on the dow jones industrial average index for the period 1897 1986 and find that significant mean daily returns are realized consistently on only four consecutive trading days of the calendar month beginning with the last trading day of the month these trading days will henceforth be referred to as the turn of month trading days ariel s and lakonishok and smidt s tests indicate that the monthly effect is not merely another manifestation of the previously documented january effect rozeff and kinney 1976 first documented that average stock index returns in january are higher than in any other month keim 1983 and others find that the surge in january returns is largely confined to stocks of small firms and to the first few trading days in january branch 1977 and others have suggested that the surge in january returns is due to year end tax loss selling and subsequent repurchases in january studies by roll 1983 reinganum 1983 ritter 1988 and others provide evidence consistent with the tax loss selling

the october 1979 regime of monetary control and the behavior of the money supply in 1980 in october 1979 the federal reserve system instituted a regime of monetary control characterized by lagged reserve accounting and a nonborrowed reserves operating target section 2 of this paper provides an analytical framework for this regime section 3 appraises the efficacy for purposes of monetary control of this regime by comparing it to a regime characterized by contemporaneous reserve accounting and a total reserves operating target section 4 describes the actual implementation of the regime section s examines the question of why the rate of growth of the money supply was so variable within 1980

valuation of small and multiple health risks a critical analysis of sp data applied to food and water safety this study elicits individual risk preferences in the context of an infectious disease using choice experiments a main objective is to examine scope sensitivity using a novel approach our results suggest that the value of a mortality risk reduction vsl is highly sensitive to the survey design our results cast doubt on the standard scope sensitivity tests in choice experiments but also on the validity and reliability of vsl estimates based on stated preference studies in general this is important due to the large empirical literature on non market evaluation and the elicited values central role in policy making

the trading decision and market clearing under transaction price uncertainty this paper models an individual s trading decision given 1 his her demand function to hold shares of an asset 2 his her expectation on what the market clearing price will be and 3 the design of the market which determines how orders will be translated into trades the particular market design we consider is the batched trading periodic call regime assuming investors are distributed according to their propensities to hold shares we model the aggregation of orders to obtain market clearing values of price and volume and to show the way in which with trading friction these solutions differ from pareto efficient values the importance of this analysis for various issues concerning market design is noted when markets are not frictionless and transaction prices are uncertain the act of trading requires analysis this paper models an individual s trading decision in secondary financial asset markets in so doing we study the order flow as an endogenous part of the system we show how given an underlying demand curve the trader will choose an optimal price quantity order to transmit to the market and we model the aggregation of orders to obtain market clearing values for price and volume these models are used to show the way in which the prices and trading volume established on the market will in general differ from their pareto efficient values much of the microstructure literature that studies the behavior of transaction prices in a nonfrictionless market has assumed that orders are generated by some exogenously given stochastic process this has been true for instance in the

the impact of return on collateral in a channel system we empirically investigate the relationship between the return on collateral and monetary policy implementation in the channel system recent developments in monetary theory suggest that the return on government assets which measures the opportunity cost of holding collateral should have negative impacts on the interest rate spread and the interbank market rate the central bank should set a higher spread when the return on collateral is below a cutoff but implements a lower spread when the return on collateral is higher than the cutoff the interbank market rate tends to lie above the policy target rate when the return on collateral is low and vice versa we use data from eurozone area and six industrialized countries to test these theoretical implications we propose two econometric models one is more structural and closely related to the monetary model to test the negative relationships and the other is based on the threshold autoregression model to detect the potential cutoffs our findings provide conditional support for the negative impact of return on collateral jel e40 e52 e58

willingness to pay and sensitivity to time framing a theoretical analysis and an application on car safety stated preference sp surveys attempt to obtain monetary values for non market goods that reflect individuals true preferences numerous empirical studies suggest that monetary values from sp studies are sensitive to survey design and so may not reflect respondents true preferences this study examines the effect of time framing on respondents willingness to pay wtp for car safety we explore how wtp per unit risk reduction depends on the time period over which respondents pay and face reduced risk in a theoretical model and by using data from a swedish contingent valuation survey our theoretical model predicts the effect to be nontrivial in many scenarios used in empirical applications in our empirical analysis we examine the sensitivity of wtp to an annual and a monthly scenario our theoretical model predicts the effect from the time framing to be negligible but the empirical estimates from the annual scenario are about 70 higher than estimates from the monthly scenario

cognitive ability and bidding behavior in second price auctions an experimental study behavioral biases are more pronounced for individuals with lower cognitive abilities this paper examines what connection if any there is between cognitive ability and bidding strategy in second price auctions despite truthful revelation being a weakly dominant strategy previous experiments have consistently observed overbidding which makes use of such auctions for inferring homegrown value problematic examining the effect of cognitive ability is important as it may help identify when one can reliably recover values from bids the results indicate that more cognitively able subjects behave in closer accordance with theory and that cognitive ability partially explains heterogeneity in bidding behavior

the effect of risk context on the value of a statistical life a bayesian meta model this paper presents the first value of statistical life vsl meta analysis that empirically estimates correction factors for out of context benefits transfer bt purposes in the field of mortality risk reductions elicited willingness to pay values in one risk context say road safety are frequently applied in other risk contexts like air pollution however differences in risk perception and the population at risk across contexts are likely to result in diverging vsl estimates in a meta analysis of 26 international stated preference studies a bayesian model is estimated regressing contingent values for mortality risk reductions originating from three different risk contexts on the characteristics of the risk reduction itself and additional variables characterizing the underlying studies a willingness to pay wtp premium for mortality risk reductions in the air pollution and general mortality risk context relative to improving road safety is observed evaluated at the mean road safety vsl estimates should be multiplied by a factor 1 8 before being applicable in the air pollution context moreover in an illustrative bt exercise we find limited overlap in the set of context specific predictive vsl distributions consequently out of context bt results in a substantial over or underestimation of the vsl

the federal reserve system and control of the money supply in the 1970s this paper addresses the question of whether the federal reserve system in the 1970s used the money supply as its predominant intermediate target of policy l did the federal reserve control the money supply in the 1970s where control is defined as requiring that the behavior of the money supply accurately reflect the stance of monetary policy desired by the federal open market committee fomc of the federal reserve system the question just posed is approached through an examination of the system s operating procedures for implementing monetary policy in the 1970s what intermediate target of policy was the fomc trying to achieve as inferred by its choice of operating procedures 2

comment on revealing differences in willingness to pay due to the dimensionality of stated choice designs an initial assessment there are very few studies that quantify the interactions and tradeoffs between statistical and cognitive efficiency in designing stated choice studies while a conceptual framework for evaluating cognitive strategies would be desirable hensher adopts a strictly empirical approach in this experiment the success of the study must be evaluated in light of his aggregating attributes rather than controlling the number of attributes asymmetry in the narrow range and wide range attributes and lack of orthogonality between the number of attributes and number of alternatives nevertheless hensher challenges uncritical acceptance of any given set of design features and correctly insists that we confirm our experience with rigorous quantitative experiments