the international transmission of interest rate shocks the federal reserve and emerging markets in latin america and asia abstract this paper analyzes the effects of changes in the u s federal reserve s federal funds rate on emerging countries interest rates using high frequency weekly data i also investigate how changes in the u s term structure affect short term rates differentials other shocks include changes in the u s dollar euro exchange rate changes in the international price of oil risk ratings and the degree of capital mobility the results indicate that there is a strong and fairly rapid transmission of changes in the federal funds rate into interest rates in the latin american countries in the sample this effect is equally large in the asian nations in the long run the adjustment path is different across the two regions however adjustment is very fast and cyclical in latin america it is gradual and slower in east asia

new issues in corporate finance flow of funds data are used to compare methods of finance in 5 countries over the period 1970 to 1985 many of the problems associated with previous studies are avoided by estimating net instead of gross financing proportions the degree of consolidation of accounts reciprocal arrangements between borrowers and lenders and compensating deposit requirements on borrowers no longer distort financing patterns corrections for inflation are provided by employing flow rather than stock figures and using own aggregation procedures to derive stock measures significant variations in financing emerge these are not readily explained by traditional descriptions of corporate finance in particular taxation as an alternative the paper suggests that relationships between borrowers and lenders establish forms of commitment that are conducive to the provision of long term finance the separation between investment and finance which has been the starting point of corporate finance theory is untenable in a multiperiod context in which terms of finance define future allocation of control

credit lines and credit utilization while much is known about the characteristics of consumers or businesses that obtain credit lines relatively little is known empirically about credit line utilization after origination this study fills that gap by testing two interrelated hypotheses concerning borrower credit quality and credit line utilization the empirical analysis confirms that borrowers with higher expectations of future credit quality deterioration originate credit lines to preserve financial flexibility furthermore we estimate a competing risks model that confirms our predictions concerning changes in borrower credit line utilization in response to borrower credit quality shocks

capital controls capital flow contractions and macroeconomic vulnerability abstract in this paper i analyze whether restrictions to capital mobility reduce vulnerability to external shocks more specifically i ask if countries that restrict the free flow of international capital have a lower probability of experiencing a large contraction in net capital flows i use three new indexes on the degree of international financial integration and a large multi country data set for 1970 2004 to estimate a series of random effect probit equations i find that the marginal effect of higher capital mobility on the probability of a capital flow contraction is positive and statistically significant but very small having a flexible exchange rate greatly reduces the probability of experiencing a capital flow contraction the benefits of flexible rates increase as the degree of capital mobility increases a higher current account deficit increases the probability of a capital flow contraction while a higher ratio of fdi to gdp reduces that probability

taming capital flows abstract the argument of this paper is that growing capital mobility is unavoidable domestic financial liberalization and the revolution in information and communications technologies make it much more difficult to stop capital flows at the border effective controls will therefore have to become increasingly comprehensive onerous and distortionary the issue is therefore how to cope with the reality of high capital mobility and to manage the transition this means not freeing capital flows before substantial progress has been made in liberalizing domestic financial markets and strengthening financial supervision it means liberalizing foreign direct investment first access to stock and bond markets second and offshore bank funding last it means putting in place exchange rate monetary and fiscal policies that do not destabilize the capital account it means reforming monetary and fiscal institutions to assure the markets of the capacity to deliver desirable monetary and fiscal outcomes

competition under credit rationing theory and evidence from rural china abstract we present a duopoly model of financial competition to describe the conditions under which competition leads to greater bank effort when repressed financial systems ration credit the model features an entrant that freely sets its interest rate and an incumbent that must charge a rate below that which is market clearing both players may exert costly effort to inform themselves about borrower types using data on rural financial institutions in china we test empirically the effects of competition on deposit growth loan portfolio composition repayment rates and other effort measures finding positive effects of competition on effort and financial performance

refinancing and decentralization evidence from china abstract decentralization can complement market liberalization by strengthening incentives of agents to respond to market signals however in china banks centralized lending authority following financial reforms in the mid 1990s we present a new theory of financial decentralization in which centralization provides a credible commitment not to refinance bad projects by reducing available information using data from chinese rural financial institutions we empirically assess the determinants of decentralization and the likelihood of collateral seizure strongly confirming the predictions of the refinancing model we conclude that weak institutional environments may limit the efficiency of financial intermediation despite financial market liberalization

the federal reserve the emerging markets and capital controls a high frequency empirical investigation in this paper i use weekly data from seven emerging nations four in latin america and three in asia to investigate the extent to which changes in fed policy interest rates have been transmitted into domestic short term interest rates during the 2000s the results suggest that there is indeed an interest rates pass through from the fed to emerging markets however the extent of transmission of interest rate shocks is different in terms of impact steady state effect and dynamics in latin america and asia the results also indicate that capital controls are not an effective tool for isolating emerging countries from global interest rate disturbances changes in the slope of the u s yield curve including changes generated by a twist policy affect domestic interest rates in emerging countries i also provide a detailed case study for chile

expected revenue from open and sealed bid auctions in his preceding piece paul milgrom has neatly laid out many of the core results of the recent literature on the theory of competitive bidding my immediate goal here is to provide the simplest possible derivation of three basic revenue ranking theorems each of these compares the expected revenue obtained from open bidding as in the typical art auction with the expected revenue obtained when bids are sealed and the winner pays his bid the first of the ranking theorems is the revenue equivalence theorem which establishes conditions under which these two seemingly very different auctions generate the same expected revenue for the seller the other two theorems establish the effect of relaxing one of the key assumptions when buyers are risk averse the seller gains if buyers submit sealed bids and the winner pays his bid on the other hand if valuations of different buyers are positively correlated rather than unrelated the seller extracts more revenue in an open ascending bid auction in reducing these theorems to their basic elements my deeper goal is to provide the reader with a better intuitive understanding of the results

bank commercial loan markets and the role of market structure evidence from surveys of commercial lending abstract this paper seeks to test two tenets that underlie the current practice of antitrust analysis in banking the first is the view that bank commercial loan markets are local in nature and the second is the view that banks in more concentrated markets are more likely to engage in some form of noncompetitive behavior tests of both of these tenets are conducted using an extensive set of loan specific survey information not previously employed to address these issues results consistent with the existence of local banking markets and the dominance of competitive differences as an explanation for observed differences in loan rates are found

auctions an introduction abstract this is a detailed introduction to auction theory it begins with a simple analysis of standard auctions and then uses a strikingly simple general solution of symmetric private values auctions to prove the payoff equivalence of many auction rules the basic framework is then modified to admit risk aversion multi unit and repeated auctions as well as collusion then follows an introduction to optimal auctions with and without stochastic entry and to common value auctions and the winner s curse problem the survey closes with a sample of applications from the regulation of natural monopolies to price competition in oligopoly and the government securities market

capital controls on inflows exchange rate volatility and external vulnerability abstract we use high frequency data and a new econometric approach to evaluate the effectiveness of controls on capital inflows we focus on chile s experience during the 1990s and investigate whether controls on capital inflows reduced chile s vulnerability to external shocks we recognize that changes in the controls will affect the way in which different macro variables relate to each other in particular we consider the case where controls co exist with an exchange rate band aimed at managing the nominal exchange rate we develop a methodology to deal explicitly with the interaction between these two policies the main findings may be summarized as follows a a tightening of capital controls on inflows depreciates the exchange rate and b we find that a tightening of capital controls increases the unconditional volatility of the exchange rate but makes it less sensitive to external shocks

how effective are capital controls a number of authors have recently argued that in order to avoid financial instability emerging countries should rely on capital controls two type of controls have been considered controls on capital outflows and controls on capital inflows in this paper i review the historical evidence on the effectiveness of these two type of controls i argue that controls on outflows have been ineffective they are circumvented and breed corruption i also analyze chile s recent experience with controls on inflows and i argue that their effectiveness has been exaggerated

capital controls in brazil stemming a tide with a signal controls on capital inflows have been experiencing a renaissance since 2008 with several prominent emerging markets implementing them in recent years we focus on brazil which instituted five changes in its capital account regime in 2008 2011 using the synthetic control method we construct counterfactuals i e brazil with no policy change for each of these changes we find no evidence that any tightening of controls was effective in reducing the magnitudes of capital inflows but we observe some modest and short lived success in preventing further declines in inflows when the capital controls were relaxed we hypothesize that price based capital controls only perceptible effect is to be found in the content of the signal they broadcast regarding the government s larger intentions and sensibilities in the case of brazil its left of center government s willingness to remove controls was perceived as a noteworthy indication that the government was not as hostile to the international financial markets as many expected it to be

identifying the efficacy of central bank interventions evidence from australia and japan abstract using a model incorporating the endogenous relationship between exchange rates and intervention we show how a change in central bank policy can be used as an identification assumption estimating this model with simulated gmm for daily data from australia and japan we find that a us 100 million purchase appreciates the australian dollar by 1 3 1 8 but the yen by just 0 2 almost all of the impact of an intervention occurs during the day it is conducted and we confirm that central banks typically lean against the wind

what s different about banks abstract negotiable certificates of deposit cd s trade in the capital market in competition with other securities like commercial paper and bankers acceptances if cd s must pay lenders competitive monetary interest the reserve tax on cd s is borne by bank borrowers viability of the tax means there must be something special about bank loans that makes some borrowers willing to pay higher interest rates than those on other securities of equivalent risk moreover there must be something special about banks that prevents other intermediaries from competing to assure that it never pays to finance loans with cd s

reputation and discretion in financial contracting the authors explain the use of legally unenforceable discretionary financial contracts in circumstances where legally enforceable contracts are feasible a discretionary contract allows a contracting party to choose whether or not to honor the contract it is shown that such a contract liquefies reputational capital by permitting it to be depreciated in exchange for the preservation of financial capital and information reusability in financially impaired states in addition discretionary contracts foster the development of reputation this explains discretion among highly confident letters holding company relationships mutual fund contracts bank loan commitments and other financial and nonfinancial contracts copyright 1993 by american economic association

macro prudential policies the global financial cycle and the real exchange rate abstract this paper examines whether a global financial cycle originating from center economies affects the real exchange rates in peripheral economies and to what extent macro prudential policies can isolate peripheral economies from this external shock we build a dynamic stochastic general equilibrium dsge model to describe how macro prudential policies mitigate the fluctuations of the real exchange rate in a small open economy in response to external shocks in which households are subject to liquidity constraints using a sample of 37 emerging and small advanced economies we show that a counter cyclical macro prudential policy implementation is effective in mitigating the fluctuations in the real exchange rates caused by a u s interest rate shock

learning to bid an experimental study of bid function adjustments in auctions and fair division games we examine learning behaviour in auction and fair division experiments with independent private values under two different price rules first and second price participants play all four games repeatedly and submit complete bid functions rather than single bids this allows us to study how institutional changes are anticipated and whether learning is influenced by the structural differences between games we find that learning does not drive bidding towards the benchmark solution bid functions are adjusted globally rather than locally directional learning theory offers a partial explanation for bid changes the data support a cognitive approach to learning

lending competition and credit availability for new firms empirical study with the price cost margin in regional loan markets abstract in this paper i present statistical evidence of the impact of lending competition on credit availability for new firms a discrete time duration analysis with respect to the years from the start up to the first loan approval by a commercial bank or a cooperative bank which is collected from survey data in japan shows that the higher price cost margin pcm of banks which reflects the existence of a quasi rent for a bank improves the credit availability for younger firms additional analysis to detect the regional determinants of the pcm of banks shows that the share of larger banks in each local credit market has a negative and significant impact on the pcm in light of the existing empirical finding that smaller banks are more likely to provide relationship banking these findings provide indirect evidence for the hypothesis that the intensity of relationship banking in each local credit market increases the pcm and this encourages banks to extend a loan to new firms so that they can pre empt the opportunity to establish lending relationships that are expected to yield such quasi rents

capital account liberalization what do cross country studies tell us capital account liberalization it is fair to say remains one of the most controversial and least understood policies of our day one reason is that different theoretical perspectives have very different implications for the desirability of liberalizing capital flows another is that empirical analysis has failed to yield conclusive results the answer another influential strand of thought contends is that this efficient markets paradigm is fundamentally misleading when applied to capital flows limits on capital movements are a distortion it is an implication of the theory of the second best that removing one distortion need not be welfare enhancing when other distortions are present

capital requirements monetary policy and aggregate bank lending theory and empirical evidence capital requirements linked solely to credit risk are shown to increase equilibrium credit rationing and lower aggregate lending the model predicts that the bank s decision to lend will cause an abnormal runup in the borrower s stock price and that this reaction will be greater the more capital constrained the bank i provide empirical support for this prediction the model explains the recent inability of the federal reserve to stimulate bank lending by increasing the money supply i show that increasing the money supply can either raise or lower lending when capital requirements are linked only to credit risk the motivation of this article is first to examine the impact of risk based capital requirements namely those that link mandatory capital to asset ratios for banks to their loans on aggregate bank lending these requirements called the basle capital rules or bis guidelines went into effect in march 1989 for banks in the leading industrialized nations these rules initially required banks to maintain capital equal to 7 25 percent of business and most consumer loans with the requirement increasing to 8 percent by the end of 1992 secondly i wish to understand the link between monetary policy and aggregate bank credit in the presence of risk based capital requirements my curiosity is sparked in part by two recent phenomena one is the experience of the u s economy which displayed sluggish growth during 1989 93 despite a monetary policy that attempted to spur bank lending and economic activity and the other is the striking decline in loans relative to security holdings mostly government bonds in the asset portfolios of u s

the folk theorem with imperfect public information the authors study repeated games in which players observe a public outcome that imperfectly signals the actions played they provide conditions guaranteeing that any feasible individually rational payoff vector of the stage game can arise as a perfect equilibrium of the repeated game with sufficiently little discounting the central condition requires that there exist action profiles with the property that for any two players no two deviations one by either player give rise to the same probability distribution over public outcomes the results apply to principal agent partnership oligopoly and mechanism design models and to one shot games with transferable utilities copyright 1994 by the econometric society

monetary policy and welfare in a small open economy this paper analyzes optimal monetary policy in a small open economy featuring monopolistic competition and nominal rigidities it shows that the utility based loss function for this economy can be written as a quadratic expression of domestic inflation output gap and real exchange rate the presence of an internal monopolistic distortion and a terms of trade externality drives optimal policy away from domestic inflation targeting and affects the optimal level of exchange rate volatility when domestic and foreign goods are close substitutes for each other the optimal policy rule implies lower real exchange rate volatility than a domestic inflation targeting regime the reverse is true when the elasticity of substitution between goods is low

deregulation disintermediation and agency costs of debt evidence from japan abstract many japanese firms reduced dependence on banks following financial deregulation in the 1980s the financial architecture of japanese firms after liberalization provides an opportunity to investigate the choice of financing with public bonds versus monitored bank loans examination of accounting and stock price data for a sample of japanese firms in the late 1980s suggests that debt structure is related to variables that serve as proxies for agency costs of debt in particular we find that the proportion of bond debt is inversely related to growth opportunities while the proportion of bank debt is positively related to growth opportunities

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

bank reputation bank commitment and the effects of competition in credit markets this article discusses the effects of credit market competition on a bank s incentive to keep its commitment to lend to a borrower when the borrower s credit quality deteriorates it is shown that unlike in the borrower s commitment problem to keep borrowing from the same bank in good times the increased competition may strengthen a bank s incentive to keep its commitment banks offer loans with commitment to the highest quality borrowers but when faced with competition from bond markets they also give these loans to lower quality borrowers an increase in the number of banks has a nonmonotonic effect new banks reinforce a bank s incentive only if there are small number of banks the inability to contract across all contingencies may result in inefficiencies in bank lending the borrower may not undertake efficient investments if future refinancing is difficult to obtain in the case of temporary distress the lender may not provide funds when the borrower is in distress if the surplus cannot be shared in the long run 1 this problem can be mitigated however if the lender and the borrower interact repeatedly for example a bank s concern to maintain a good reputation can induce the bank to keep its commitment to a costly action see e g sharpe 1990 boot greenbaum and thakor 1993 aoki 1994 chemmanur and fulghieri 1994 indeed the use of bank reputation as an enforcement mechanism seems to be widespread 2

the objective function of government controlled banks in a financial crisis abstract we present evidence that government controlled banks gcbs significantly increased their lending to small and medium sized enterprises smes whose main bank was a large bank in the 2008 09 financial crisis further analyses show that the weak relationship between large banks and smes is a major cause for this phenomenon the mixed cournot oligopoly model with relationship banking where profit maximizing private banks and a welfare maximizing gcb coexist shows that this finding is consistent with the welfare maximization by a gcb rather than its own profit maximization

joint liability lending and the rise and fall of china s township and village enterprises abstract we present a new explanation for the rise and fall of collectively owned enterprises based on the changing lending preferences of banks until the mid 1990s bank loans to collective firms exhibited the key features of joint liability lending supported by the sanctioning ability of local government leaders however subsequent changes in collateral firm performance interest rates and financial competition led banks to prefer individual lending to private firms this explanation is supported by empirical analysis of the determinants of bank lending preferences the involvement of township leaders in lending and the ability of firms to obtain loans

uncertainty capital flows and maturity mismatch abstract this paper explores a how the financial uncertainty generated by volatile international capital flows interacts with maturity mismatch on the balance sheets of nonfinancial firms to increase the volatility of output investment and total factor productivity tfp in emerging market economies i build a model of a small open economy in which financial frictions force firms to fund long term projects with short term debt in response to changes in the level of uncertainty regarding the availability of foreign borrowing firms adjust their long term investment contributing to the volatility of investment and output as well as generating endogenous fluctuations in aggregate productivity using data from a panel of major emerging markets i show that the volatility of portfolio debt flows negatively affects output by dampening investment while the volatility of equity flows which do not generate maturity mismatch has no effect consistent with the mechanism in the model the negative impact of capital flow volatility is larger at low levels of financial development and in industries with longer time to build lags my estimates imply that shocks to capital flow volatility account for one fifth of the excess output volatility of the emerging markets in my sample relative to a set of small open advanced economies

bank competition and access to finance international evidence using a unique database for 74 countries and for firms of small medium and large size we assess the effect of banking market structure on the access of firms to bank finance we find that bank concentration increases obstacles to obtaining finance but only in countries with low levels of economic and institutional development a larger share of foreign owned banks and an efficient credit registry dampen the effect of concentration on financing obstacles while the effect is exacerbated by more restrictions on banks activities more government interference in the banking sector and a larger share of government owned banks

bank loan commitment contracts data theory and tests over 80 per cent of all commercial bank lending to corporations in the u s is done via bank loan commitments yet the authors have little empirical knowledge of loan commitment contracts in this paper they describe the rich contractual structure of bank loan commitments based on data pertaining to over 2 500 contracts the authors then develop a model which demonstrates that the observed complex structure of bank loan commitment contracts which typically include multiple fee structures borrower specific contracting variables and the standard material adverse change clause is important when the bank faces borrower adverse selection and moral hazard problems finally the authors verify the robustness of their model by confronting its additional testable predictions with the data copyright 1997 by ohio state university press

do bank loan relationships still matter james 1987 and lummer and mcconnell 1989 find that during the 1970s and 1980s the market responded positively to announcements of bank lending agreements however many of the advantages associated with bank lending relationships have largely disappeared since the 1980s due to financial system changes and greater availability of and less costly financial information we find that bank loan announcements produced positive abnormal returns in the 1980s but by the latter part of our sample period those announcement returns disappear entirely we do find that bank loan relationships may still be valuable to smaller poorer performing firms or during periods of high credit risk spreads

fixed revenue auctions theory and behavior i introduction there are numerous varieties of auction institutions used in practice and studied in the economics literature the four standard mechanisms for selling a fixed quantity as in a single unit or lot are the english dutch first price sealed bid and second price sealed bid auctions the widely known theoretical results are that the english and second price auctions are equivalent as are the dutch and first price auctions one of the most insightful theoretical results of private value auctions is that under certain assumptions the expected revenue is constant across the four mechanisms see mcafee and mcmillan 1987 milgrom 1987 myerson 1981 but behavioral examinations of private value auctions have consistently found that the relationships among the formats are not so straightforward english clock auctions generate truthful revelation as predicted however second price auctions which should also generate truthful revelation do not reliably do so in a laboratory setting harstad 2000 kagel harstad and levine 1987 further revenue equivalence does not hold between first price and second price auctions coppinger smith and titus 1980 1 in part this is due to the fact that many bidders in first price auctions act as if they are risk averse furthermore dutch auctions and first price sealed bid auctions are not behaviorally isomorphic observed prices are significantly lower in the dutch clock auctions than in first price auctions cox roberson and smith 1982 almost exclusively the focus of previous work has been on auctions determining the selling price for a prespecified lot 2 however in some situations a seller may be more concerned about raising a fixed amount of revenue for example a business may sell off just enough inventory to gain the needed liquidity to undertake a particular project a person may pawn just enough items to secure money with which to pay the monthly bills alternatively in a procurement setting a buyer may desire to acquire as much as possible for some nonfungible fixed budget for example a researcher whose grant is expiring may buy as many supplies as possible with the remaining money or a firm may have a fixed advertising budget with which to buy the most effective campaign though not typically thought of in this way auctions can be used to solve these types of problems as well 3 we define a fixed revenue auction to be a bidding mechanism in which a prespecified total payment is exchanged for a variable quantity of a good 4 wessen and porter 1997 developed a fixed revenue auction to cover the 326 000 cost of moving antennae for the cassini mission to saturn the auction allowed competing research teams to place bids in terms of the mass they desired on the craft and the price per unit for the mass the goal of this paper is to understand the behavioral properties of fixed revenue auctions utilizing the four standard mechanisms to enable comparisons with the extensive literature on auctions the environment is designed to allow the maximum similarity between auctions in the two dimensions this includes placing nontrivial restrictions on buyer values to yield a theoretical equivalence between auction dimensions given this one might be inclined to suppose that the behavioral properties are a forgone conclusion this need not be the case as evidenced by the aforementioned lack of isomorphism between first price and dutch auctions and between english and second price auctions in the standard setting experiments have shown that even simple changes in framing can impact behavior 5 for example framing a lottery as a gain or a loss can change the value one places on the lottery and framing the ultimatum game as a buyer seller interaction can lead to behavior more consistent with material self interest a change in auction dimension however is more than a simple framing effect it is a change in the underlying decision problem

target zones and realignments recent contributions emphasize that the presence of exchange rate target zones has important effects on the within band behavior of exchange rates when agents are forward looking the authors find that the implications of available models are inconsistent with european exchange rate data and they suggest that the frequent realignments occurring in the period they consider may be responsible for this they construct a model in which the likelihood of a realignment in the near future increases as the exchange rate approaches the limits of its fluctuation band and show that its implications are broadly consistent with the evidence copyright 1992 by american economic association

capital market liberalization economic growth and instability summary this paper reviews briefly the arguments for capital market liberalization and identifies their theoretical and empirical weaknesses this provides the foundations for the argument for intervention in short term capital flows the paper concludes with a brief discussion of the various ways in which such interventions may be implemented 2000 elsevier science ltd all rights reserved

international capital flows abstract the surge in international asset trade since the early 1990s has lead to renewed interest in models with international portfolio choice we develop the implications of portfolio choice for both gross and net international capital flows in the context of a simple two country dynamic stochastic general equilibrium dsge model we focus on the time variation in portfolio allocation following shocks and resulting capital flows endogenous time variation in expected returns and risk which are the key determinants of portfolio choice affect capital flows in often subtle ways the model is consistent with a broad range of empirical evidence an additional contribution of the paper is to overcome the technical difficulty of solving dsge models with portfolio choice by developing a broadly applicable solution method

capital controls in brazil effective abstract a large theoretical literature emerged in recent years analyzing the positive and normative effects of capital controls begging for empirical studies to validate it no emerging market experimented as actively with controls on capital inflows as brazil did since late 2009 this paper analyzes the impact of those measures these policies had some success in segmenting the brazilian from global financial markets as measured by the spread between onshore and offshore dollar interest rates as well as adr premia relative to the underlying local stocks the measures adopted from late 2009 to mid 2011 did not translate into significant changes in the exchange rate suggesting limited success in mitigating exchange rate appreciation however the exchange rate strongly depreciates after a tax on the notional amount of derivatives is adopted in mid 2011 the last of the three restrictions studied may have depreciated the brazilian real in the range from 4 to 10 percent that strong response may have been driven by complementarities with the previous measures as well as an unexpected easing in monetary policy

borrowing relationships intermediation and the cost of issuing public securities abstract this paper investigates how an established borrowing relationship affects the costs associated with initial public offerings of equity our model illustrates how the existence of a borrowing relationship reduces the ex ante uncertainty about the value of the issuing firm s equity in the secondary market if underpricing is related to uncertainty a borrowing relationship can reduce underpricing empirically we find that other things equal ipos of firms with previously established borrowing relationships are underpriced substantially less than other ipos

do loan commitments cause overlending i begin with a model that generates quantity credit rationing by banks in the spot credit market when the real interest rate is high and there is an economic downturn then i rationalize a bank loan commitment as partial insurance against such future rationing incorporating uncertainty about both the creditworthiness of borrowers and the abilities of banks to screen borrowers i extend the bank contracting literature wherein i examine banks decisions of whether to lend under the commitments sold earlier i show that this discretion of whether to honor borrowing requests under commitments generates reputational concerns on the part of banks and can lead to an equilibrium in which loan commitments serve their role in increasing credit supply relative to the spot credit market but produce the inefficiency of excessive credit supply when the real interest rate is low and the economy is doing well despite this welfare is higher with loan commitments than with spot credit numerous empirical predictions and policy implications are drawn out

equilibrium transformations and the revenue equivalence theorem i develop a method that transforms an equilibrium strategy profile from one auction to another the method is constructive and does not require complicated computation this provides a new approach to revenue equivalence and extends the theorem to domains where it had not previously been known in particular to simultaneous multiple object auctions with complete information and to auction environments having correlated private values and common values

auctions and corruption an analysis of bid rigging by a corrupt auctioneer in many auctions the auctioneer is an agent of the seller this invites corruption we analyze a model in which the auctioneer orchestrates bid rigging by inviting a bidder to either lower or raise his bid whichever is more profitable the interplay between these two types of corruption gives rise to a complex bidding problem that we tackle with numerical methods our results indicate that corruption does not only redistribute surplus away from the seller but also distorts efficiency we furthermore explain why both the auctioneer and bidders have a vested interest in maintaining corruption

loan commitments and optimal monetary policy this paper analyzes how increased reliance on floating rate loan commitments by firms affects the optimal interest rate conditioned monetary policy the analysis uses a stylized poole type is lm structure that explicitly integrates the interaction between credit and goods markets by endogenizing the choice between traditional loans and floating rate commitments the model can analyze interaction between central bank monetary policy decisions and the choice of loan contract types a key implication is that when this joint decision problem is taken into account the separation between the monetary and goods sectors assumed in the standard is lm paradigm breaks down copyright 1990 by ohio state university press

the benefits of lending relationships evidence from small business data this paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm we analyze data collected in a survey of small firms by the small business administration the primary benefit of building close ties with an institutional creditor is that the availability of financing increases we find smaller effects on the price of credit attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit in sum relationships are valuable and appear to operate more through quantities rather than prices

first price auction symmetric equilibria with a general distribution abstract in this paper i obtain the mixed strategy symmetric equilibria of the independent private values first price auction for any distribution of valuations the equilibrium strategy is a pure strategy at the continuity points of the distribution and bids a mixed strategy at the discontinuity points of the distribution

market structure and incomplete information price formation in a real world repeated english auction abstract this paper examines the effect of buyer size on price formation in an english auction of used state police cars while open auctions generally favor competitive pricing bikhchandani 1988 develops a model of a second price common value auction in which bidders can use strategic behavior based on repeated sales to develop an aggressive reputation and as a result pay lower prices in equilibrium the paper tests this hypothesis by examining sales of 340 used automobiles sold at 13 public auctions conditional on the volume of purchases made by the three largest buyers at the auctions the empirical results show that the number of buyers plays a stronger role in price formation than does buyer size

controls on capital inflows do they work abstract this paper analyzes the effectiveness of controls on capital inflows in particular we analyze in great detail the chilean experience with the use of the unremunerated reserve requirement we examine the effects of the controls applied in chile in 1991 1998 on interest rates real exchange rate and the volume and composition of capital inflows the effects are elusive and it is difficult to pin down long run effects although after the unremunerated reserve requirement was introduced there was an increase in the interest rate differential the econometric evidence does not show it has a significant long run effect also we detect very small effects on the real exchange rate however the more persistent and significant effect is on the composition of capital inflows tilting composition toward longer maturity

default and renegotiation a dynamic model of debt we analyze the role of debt in persuading an entrepreneur to pay out cash e ows rather than to divertthem in the e rstpartof the paper we study the optimal debt contract specie cally the trade off between the size of the loan and the repayment under the assumption that some debt contract is optimal in the second part we consider a more general class of nondebt contracts and derive sufficient conditions for debt to be optimal among these