capital requirements and bank behaviour empirical evidence for switzerland abstract in recent years regulators have increased their focus on the capital adequacy of banking institutions to enhance the stability of the financial system the purpose of the present paper is to shed some light on whether and how swiss banks react to constraints placed by the regulator on their capital building on previous work by shrieves and dahl cf shrieves r e dahl d 1992 the relationship between risk and capital in commercial banks journal of banking and finance 16 439 457 we use a simultaneous equations model to analyse adjustments in capital and risk at swiss banks when those approach the minimum regulatory capital level our results indicate that regulatory pressure induce banks to increase their capital but does not affect the level of risk

firm optimism and pessimism abstract this paper explores the question of whether firms have systematic expectation biases using microdata from the west german manufacturing subset of the ifo business climate survey we infer quarterly production growth rates at the firm level we then combine this information with production growth expectations over a quarterly horizon to construct quantitative firm specific expectation errors our findings show that at most one third of our firms systematically over or underpredict their production growth one quarter ahead our findings further show that larger and exporting firms tend to have more realistic expectations while firms with higher leverage are more prone to expectations that are biased towards optimism

can firms see into the future survey evidence from germany abstract this paper presents new evidence on the expectation formation process of firms from a survey of the german manufacturing sector first firms become too optimistic after their business has improved consistent with the over extrapolation of their experience second firms extrapolate improvements in their business more than deteriorations third firms are more optimistic pessimistic than usual during business cycle peaks troughs suggesting that they do not anticipate reversals fourth the german reunification provided a positive exogenous shock to the business of west german products the industries most positively affected by the shock initially over extrapolated the past downward trend just as much as the less affected industries and thus failed to anticipate the reversal fifth more overoptimistic firms subsequently report larger inventories and lower profits suggesting that expectation errors entail opportunity costs sixth older and larger firms show a smaller extrapolation bias indicating that time and resources can alleviate the extrapolation bias seventh firms that expect their business to improve tend to also expect their prices to increase suggesting that firms mostly try to forecast demand shocks as opposed to supply shocks overall these observations suggest that firms have a limited ability to anticipate changes in their activity and extrapolate their experience too much

business cycle dynamics under rational inattention we develop a dynamic stochastic general equilibrium dsge model with rational inattention and compare its predictions to data households and decision makers in firms have limited attention and optimally allocate their attention rational inattention is the only source of slow adjustment the model matches the empirical impulse responses to monetary policy shocks and aggregate technology shocks at the same time profit losses and utility losses from inattention are very small furthermore it matters whether one uses this model or a conventional dsge model for policy analysis

information rigidity and the expectations formation process a simple framework and new facts we propose a new approach to test the full information rational expectations hypothesis which can identify whether rejections of the null arise from irrationality or limited information this approach quantifies the economic significance of departures from the null by quantifying the underlying degree of information rigidity applying this approach to u s and international data of professional forecasters and other agents yields pervasive evidence consistent with models of imperfect information furthermore the proposed approach sheds new light on policies such as inflation targeting and those leading to the great moderation affecting expectations finally we document evidence of state dependence in the expectations formation process

how do firms form their expectations new survey evidence author s coibion o gorodnichenko y kumar s abstract 2018 american economic association all rights reserved we survey new zealand firms and document novel facts about their macroeconomic beliefs there is widespread dispersion in beliefs about past and future macroeconomic conditions especially inflation this dispersion in beliefs is consistent with firms incentives to collect and process information using experimental methods we find that firms update their beliefs in a bayesian manner when presented with new information about the economy and that changes in their beliefs affect their decisions inflation is not generally perceived as being important to business decisions so firms devote few resources to collecting and processing information about inflation

man bites dog business cycles the newsworthiness of an event is partly determined by how unusual it is and this paper investigates the business cycle implications of this fact signals that are more likely to be observed after unusual events may increase both uncertainty and disagreement among agents in a simple business cycle model such signals can explain why we observe i occasional large changes in macro economic aggregate variables without a correspondingly large change in underlying fundamentals ii persistent periods of high macroeconomic volatility and iii a positive correlation between absolute changes in macro variables and the cross sectional dispersion of survey expectations

the power of forward guidance revisited in recent years central banks have increasingly turned to forward guidance as a central tool of monetary policy especially as interest rates around the world have hit the zero lower bound standard monetary models imply that far future forward guidance is extremely powerful promises about far future interest rates have huge effects on current economic outcomes and these effects grow with the horizon of the forward guidance we show that the power of forward guidance is highly sensitive to the assumption of complete markets if agents face uninsurable income risk and borrowing constraints a precautionary savings effect tempers their responses to changes in future interest rates as a consequence forward guidance has substantially less power to stimulate the economy in addition we show that the business cycle dynamics of our incomplete markets model differ substantially from its complete market counterpart this contrasts with the well known results of krusell and smith 1998 we present approximate representations that can easily be incorporated into standard business cycle models

inflation and output in new keynesian models with a transient interest rate peg a familiar result in the canonical dynamic new keynesian dnk model is that policymakers constrained by the zero bound can improve outcomes by promising to keep rates low after the zero bound is not binding we examine a general class of interest rate pegs in a variety of dnk models standard versions of the model produce counterintuitive reversals where the effect of the interest rate peg can switch from highly expansionary to highly contractionary for modest changes in the length of the interest rate peg this unusual behavior does not arise in sticky information models of the phillips curve

monetary policy announcements and expectations evidence from german firms abstract we assess empirically whether monetary policy announcements impact firm expectations two features of our data set are key first we rely on a survey of production and price expectations of german firms that is expectations of actual price setters second we observe the day on which firms submit their answers to the survey we compare the responses of firms before and after monetary policy surprises and obtain two results first firm expectations respond to policy surprises second the response becomes weaker as the surprise becomes bigger a contractionary surprise of moderate size reduces firm expectations while a moderate expansionary surprise raises them large surprises both negative and positive fail to alter expectations consistent with this result we find that many of the ecb s announcements of non conventional policies did not affect expectations significantly overall our results are consistent with the notion that monetary policy surprises generate an information effect which is endogenous to the size of the policy surprise

the high frequency response of the eur usd exchange rate to ecb communication we investigate the impact of the european central bank s monetary policy communication during the press conference held after the monthly governing council meeting on the eur usd exchange rate in high frequency based on the method of content analysis we construct communication indicators for the introductory statement and find that communication with respect to future price developments is most relevant in response to statements about increasing risks to price stability the eur appreciates on impact to the contrary communication about economic activity and monetary aggregates does not generate significant exchange rate reactions

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

consumer uncertainty and purchase decision reversals theory and evidence this research examines how prepurchase information that reduces consumer uncertainty about a product or service can affect consumer decisions to reverse an initial product purchase or service enrollment decision one belief commonly held by retailers is that provision of greater amounts of information before the purchase reduces decision reversals we provide theory and evidence showing conditions under which uncertainty reducing information provided before the purchase decision can actually increase the number of decision reversals predictions generated from an analytical model of consumer behavior incorporating behavioral theory of reference dependence are complemented by empirical evidence from both a controlled behavioral experiment and econometric analysis of archival data combined the theory and evidence suggest that managers should be aware that their information provision decisions taken to reduce decision reversals may actually increase them data as supplemental material are available at http dx doi org 10 1287 mksc 2015 0906

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

manufacturer s return policies and retail competition manufacturers returns policies are a common feature in the distribution of many products the obvious rationale for returns policies is insurance practitioners not surprisingly have a different perspective and view returns as a cost of doing business in this paper we study the strategic effect of returns policies on retail competition and highlight its profitability implications for a manufacturer the setting for our research is the distribution of products with uncertain demand limited shelf lives and retail competition our objective is to provide a better understanding of when manufacturers should adopt returns policies the insights are obtained with a model based on the economics of strategy and decision making under uncertainty we show that when retailing is competitive and there is no uncertainty in demand a returns policy subtly induces retailers to compete more intensely the provision of a returns policy reduces retail prices without affecting wholesale prices thereby reducing retailer margins and improving manufacturer profitability the intuition is that with a returns policy cournot like levels of retail stocks cannot be sustained each retailer will order stocks so that it will not be constrained by stocks and so intensifying retail competition when however demand is uncertain and there is a single retailer a returns policy encourages the retailer to over stock and so decreases upstream manufacturer profits while the provision of a returns policy leads to lower retail margins the optimality of returns policy depends on the overall uncertainty and marginal cost a returns policy reduces the dispersion in retail prices between the high and low states of demand and the range of retail prices in the returns case is contained within the range of retail prices for the no returns case in the general setting when there are competing retailers and demand is uncertain there is a trade off for the manufacturer between the benefits more intense retail competition and the costs excessive stocking of a returns policy we find that a manufacturer should accept returns when the marginal production cost is sufficiently low and demand uncertainty is not too great to validate the results of our theory we conduct an empirical test with data from a major u s retailer the tests confirm our prediction that a returns policy intensifies retail competition and reduces retailer margins our theory and empirical test should interest practitioners and researchers in distribution especially those concerned with managing retail competition

high frequency identification of monetary non neutrality the information effect we present estimates of monetary non neutrality based on evidence from high frequency responses of real interest rates expected inflation and expected output growth our identifying assumption is that unexpected changes in interest rates in a 30 minute window surrounding scheduled federal reserve announcements arise from news about monetary policy in response to an interest rate hike nominal and real interest rates increase roughly one for one several years out into the term structure while the response of expected inflation is small at the same time forecasts about output growth also increase the opposite of what standard models imply about a monetary tightening to explain these facts we build a model in which fed announcements affect beliefs not only about monetary policy but also about other economic fundamentals our model implies that these information effects play an important role in the overall causal effect of monetary policy shocks on output

comments on monetary policy announcements and expectations evidence from german firms abstract enders et al 2019b find that small expansionary monetary policy surprises lead to increases in firms price and production expectations vice versa for small contractionary monetary surprises for larger monetary surprises of either direction the reaction of price and production expectations tends to be dampened back to zero this finding is explained with a differential size dependent mix in monetary policy surprises as regards their actual monetary policy content and their delphic information content about how the monetary authority views the state of the economy policy conclusions from this result for the conduct of monetary policy and its communication are discussed

the impact of the prechoice process on product returns abstract this article introduces a framework to help researchers understand the mechanisms underlying product returns the framework draws on research in consumer choice consumer memory and attitude stability to predict how the process that consumers go through at a predecisional stage affects their postpurchase behavior the likelihood of product returns is considered contingent on the amount and nature of cognitive responses generated during the choice process in study 1 the authors focus on the impact of the nature of cognitive responses and show that the generation of responses of a different nature while choosing directly affects the likelihood of choice reversal the comparative versus noncomparative nature of thoughts generated influences their diagnosticity and accordingly their impact on product returns when consumers are exposed to disconfirming information in study 2 the authors draw on the inoculation theory to manipulate the number of prechoice thoughts they find that when faced with

time varying business volatility and the price setting of firms abstract does time varying business uncertainty volatility affect the price setting of firms and in what way we estimate from the micro data of the german ifo business climate survey the impact of idiosyncratic volatility on the extensive margin of firm level price setting behavior heightened uncertainty increases the probability of a price change suggesting that for price setting the volatility effect dominates the wait and see effect in a second step we use structural vector autoregressions to estimate the effects of uncertainty on the intensive pricing margin higher uncertainty leads to an increase in price dispersion and to larger price adjustments

signalling effects of monetary policy we develop a dynamic general equilibrium model in which the policy rate signals the central bank s view about macroeconomic developments to price setters the model is estimated with likelihood methods on a u s data set that includes the survey of professional forecasters as a measure of price setters inflation expectations this model improves upon existing perfect information models in explaining why in the data inflation expectations respond with delays to monetary impulses and remain disanchored for years in the 1970s u s monetary policy is found to signal persistent inflationary shocks explaining why inflation and inflation expectations were so persistently heightened the signalling effects of monetary policy also explain why inflation expectations adjusted more sluggishly than inflation after the robust monetary tightening of the 1980s

the effectiveness of non standard monetary policy measures evidence from survey data we assess the perception of professional forecasters regarding the effectiveness of unconventionalmonetary policy measures undertaken by the u s federal reserve after the collapse of lehmanbrothers using individual survey data we analyse the changes in forecasting of bond yields aroundthe announcement and implementation dates of non standard monetary policies the resultsindicate that bond yields are expected to drop significantly for at least one year after theannouncement and the implementation of accommodative policies

optimal sticky prices under rational inattention this paper presents a model in which price setting firms decide what to pay attention to subject to a constraint on information flow when idiosyncratic conditions are more variable or more important than aggregate conditions firms pay more attention to idiosyncratic conditions than to aggregate conditions when we calibrate the model to match the large average absolute size of price changes observed in micro data prices react fast and by large amounts to idiosyncratic shocks but only slowly and by small amounts to nominal shocks nominal shocks have strong and persistent real effects we use the model to investigate how the optimal allocation of attention and the dynamics of prices depend on the firms environment jel e 3 e5 d8

banks non traditional activities under regulatory changes impact on risk performance and capital adequacy using the big six canadian chartered banks quarterly financial statements and daily stock market data from 1982 to 2018 we examine the impact of non interest income on canadian banks risk perfor