the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

momentum and funding conditions abstract we find evidence linking return momentum with macroeconomic conditions namely the funding environment we show that winners outperform losers by a significant amount in restrictive funding states while in expansive states winners and losers perform similarly this pattern is consistent with changing investor preferences for winners and losers following signaled shifts in funding availability one plausible channel for this relation is the interaction between stock level illiquidity and funding conditions we find that liquidity risk is significantly priced during restrictive states especially in loser stocks furthermore loser stocks become more illiquid during restrictive conditions both effects help explain the relative performance difference between losers and winners across funding environments moreover the funding environment influences the relationship between momentum and firm characteristics after controlling for the influence of sentiment market states and return dispersion overall transitions in funding states appear to encourage investors to revise their factor pricing decisions which produces inter temporal variation in momentum

estimating the open market desk s daily reaction function this paper presents the results of an empirical investigation into the proximate determinants of the federal reserve s daily open market operations using information available each morning at the fed conference call the author models the open market desk s choice of both the quantity and the type of operation using a friction model for the former and a multinomial logit framework for the latter different types of operations are shown to send different signals to the market about the underlying thrust of fed policy and open market operations in recent years are shown to have become increasingly keyed to the federal funds rate copyright 1993 by ohio state university press

liquidity effects and the monetary transmission mechanism several recent papers provide strong empirical support for the view that an expansionary monetary policy disturbance generates a persistent decrease in interest rates and a persistent increase in output and employment existing quantitative general equilibrium models which allow for capital accumulation are inconsistent with this view there does exist a recently developed class of general equilibrium models which can rationalize the contemporaneous response of interest rates output and employment to a money supply shock however a key shortcoming of these models is that they cannot rationalize persistent liquidity effects this paper discusses the basic frictions and mechanisms underlying this new class of models and investigates one avenue for generating persistence we argue that once a simplified version of the model in christiano and eichenbaum 1991 is modified to allow for extremely small costs of adjusting sectoral flow of funds positive money shocks generate long lasting quantitatively significant liquidity effects as well as persistent increases in aggregate economic activity

social capital informal governance and post ipo firm performance a study of chinese entrepreneurial firms social capital can serve as informal governance in weak investor protection regimes using hand collected data on entrepreneurs political connections and firm ownership we construct several original measures of social capital and examine their effect on the performance of entrepreneurial firms in china after their initial public offerings political connections or a high percentage of external investors tend to enhance firm performance but intragroup related party transactions commonly lead to performance decline these forms of social capital have a strong influence on the performance of chinese firms whereas formal governance variables such as board size or board independence have little effect although social capital may serve as an informal governance mechanism and effectively substitute for formal governance mechanisms in an emerging market this role of social capital raises several ethical concerns notably the development of rent seeking and crony capitalism

the information content of the federal funds rate is it unique this paper investigates the information content of the federal funds rate relative to other market interest rates the empirical results indicate that the federal funds rate is not informationally superior to the overnight repurchase rate or the three month t bill rate unanticipated changes in monetary policy do not systematically move the funds rate away from its long run equilibrium relationship with other short term interest rates these results support the efficient market view that the federal funds rate should not contain more information including that about monetary policy than other interest rates copyright 1995 by ohio state university press

international interest rates and us monetary policy announcements evidence from hong kong and singapore this paper investigates the responses of market interest rates to us monetary policy announcements for the us and two emerging economies hong kong and singapore which are similar on many respects but have experienced opposite exchange rate regimes in the last twenty years our results based on market expectations extracted from federal fund futures rates document that fomc announcements significantly affect the term structure of interest rate in the us and both asian countries further international interest rate differentials around fomc meeting dates tend to be negative for short maturities with the impact gradually dissipating as bond maturity increases finally for the case of singapore we find that domestic interest rates react to both external and domestic monetary policy announcements with a magnitude that is larger over the full bond maturity spectrum for domestic announcements these results are robust to time varying futures risk premia and alternative measures of interest rates expectations

can socioeconomic heritage produce a lost generation with regard to entrepreneurship a considerable amount of literature deals with the influence of institutions on entrepreneurship but for all that little is known about the interplay between institutions and personal determinants of entrepreneurship in this paper the empirical evidence that older people in transition economies have low engagement in entrepreneurial activity is the starting point for analyzing how institutions moderate the relationship between individual characteristics and entrepreneurial choice the results show that the socioeconomic heritage of being exposed to socialism deters entrepreneurship an effect that is more pronounced for high impact entrepreneurship detailed analyses reveal that the effect is driven by devaluation of socialist work experience and the influence of socialism on mindset

the effect of unanticipated money on the money and foreign exchange markets abstract a number of studies have attempted to determine why unanticipated increases in the money supply are positively correlated with money market interest rates by examining the response of the foreign exchange market to unanticipated changes in the money stock they have found a significant positive relationship between unanticipated increases in the money supply and the foreign exchange value of the dollar and have interpreted this as evidence for the anticipated liquidity effect hypothesis however these results support this hypothesis only if both markets respond simultaneously to unanticipated changes in money this paper examines the cross market consistency of the response using six bilateral exchange rates and the treasury bill rate all measured over a narrow time interval the results show that in general these markets do not respond simultaneously to money announcements

the fed and short term rates is it open market operations open mouth operations or interest rate smoothing abstract it is widely believed that the fed controls the federal funds rate by altering the degree of pressure in the reserve market through open market operations when it changes its target for the funds rate recently however several analysts have suggested that the fed need not conduct open market operations to change the funds rate rather they argue it is sufficient that the fed indicate its desire for the funds rate this paper notes that there is yet a third alternative the interest rate smoothing hypothesis that suggests that the fed does not move rates per se but rather smooths the transition of rates to the new equilibrium required by economic shocks this paper tests the open market and open mouth alternatives using a methodology first used by cook and hahn journal of monetary economics 1989a 331 finding no evidence that either open market operations or open mouth operations can account for the close relationship between the funds rate and the funds rate target a variety of evidence consistent with the interest rate smoothing hypothesis is considered the results suggest that many changes in the fed s funds rate target are an endogenous response to economic events and suggest that an alternative way to identify exogenous changes in policy is to identify exogenous changes in the fed s funds rate target

optimal monetary policy with durable consumption goods abstract we document that the durable goods sector is much more interest sensitive than the nondurables sector and then investigate the implications of these sectoral differences for monetary policy we formulate a two sector general equilibrium model that is calibrated both to match the sectoral responses to a monetary shock derived from our empirical var and to imply an empirically realistic degree of sectoral output volatility and comovement while the social welfare function involves sector specific output gaps and inflation rates the performance of the optimal policy rule can be closely approximated by a simple rule that targets a weighted average of aggregate wage and price inflation in contrast a rule that stabilizes a more narrow measure of final goods price inflation performs poorly in terms of social welfare

inter temporal variation in the illiquidity premium abstract we find evidence of a systematic link between monetary conditions and inter temporal variation in the price of liquidity specifically following an expansive monetary policy shift funding conditions improve and market wide liquidity increases which is especially beneficial for illiquid securities the improved liquidity and funding conditions reduce the returns required for holding illiquid securities consequently illiquid stocks experience relatively large price increases when monetary conditions become expansive and thus the measured return spread between illiquid and liquid stocks expands substantially overall our evidence supports the claim that the price of asset liquidity is dependent on monetary conditions

effects of changes in the discount rate on the foreign exchange value of the dollar 1973 to 1978 this paper attempts to analyze the effects of changes in the federal reserve s discount rate on the dollar s foreign exchange value if a discount rate increase were to signal a subsequent general increase in market interest rates one would expect u s dollar denominated assets to become relatively more attractive and the ensuing increased demand for dollar assets to tend to raise the dollar s exchange value the reverse would be true for discount rate decreases however in recent years the federal reserve s policy of moving the discount rate with a lag behind the federal funds rate means that market participants generally have sufficient information to anticipate changes in the discount rate when this is the case announcement effectsimmediate and discernible market responses to discount rate changes do not occur under special circumstances in 1978 however announcement effects could and did occur by increasing the discount rate when the federal funds discount rate differential was around normal levels and by increasing the discount rate by a larger amount than the market anticipated the federal reserve used the discount rate as a signal to market participants that it would use other operating instruments to bring about changes in market interest rates and the monetary base in their 1977 article raymond e lombra and raymond g torto ran a number of econometric tests for discount rate exogeneity on monthly data from january 1968 to may 1974 they concluded that discount rate movements were not independent of the spread between the discount rate and the federal funds rate given rational expectations therefore changes in the discount rate could not generate announcement effects lombra and torto 1977 this paper updates the work of lombra and torto and then attempts to test directly

asset prices news shocks and the trade balance we analyze the relationship between asset prices and the trade balance estimating a bayesian var for a broad set of 38 industrialized and emerging market countries to derive model based identifying restrictions we model asset price shocks as news shocks about future productivity in a two country dynamic stochastic general equilibrium model such shocks are found to exert sizable effects on the trade balance moreover the effects are highly heterogeneous across countries for instance following a news shock that implies on impact a 10 increase in domestic equity prices relative to the rest of the world the u s trade balance will worsen by up to 1 0 percentage points but much less so for most other economies we find that this heterogeneity appears to be linked to the financial market depth and equity home bias of countries moreover the channels via wealth effects and via the real exchange rate are important for understanding the heterogeneity in the transmission

why do t bill rates react to discount rate changes a number of alternative explanations for the response of t bill rates to discount rate changes have been offered in the literature this paper investigates cook and hahn s 1988 hypothesis that discount rate changes signal a change in the fed s federal funds rate target which in turn induce changes in t bill rates after showing that the evidence that theyt claim supports their view cannot be used to differentiate their hypothesis from equally plausible alternatives we show that a valid alternative test fails to provide support for their view and that discount rate changes do not appear to signal changes in the target for the funds rate copyright 1994 by ohio state university press

capital inflows and the u s housing boom we estimate an open economy vector autoregressive var model to study the effect of capital inflow shocks on the u s housing market we look at different external shocks that generate capital inflows to the u s in particular saving glut shocks and foreign monetary policy expansions the shocks are identified with theoretically robust sign restrictions derived from an open economy dynamic stochastic general equilibrium dsge model our findings suggest that capital inflows that result from saving glut shocks have a positive and persistent effect on real house prices and real residential investment

the impact of discount rate changes on market interest rates evidence from three european countries and japan abstract this paper examines the impact of official discount rate odr changes on market interest rates of four countries germany france japan and the uk during the period from 1980 through 1997 the overall results indicate that short term rates are more responsive than long term rates for all countries the magnitude of the changes is country specific market rate responses are lower for germany and japan which have fewer changes in odr these results are consistent with expectations that there is less uncertainty under such regimes consistent with the pace of regulatory reforms the results of odr changes are strongest in uk and weakest in japan when monetary policy is changed or reversed interest rate responses are shown to be larger for countries with frequent changes in discount rates

the effect of changes in the federal funds rate target on market interest rates in the 1970s abstract this paper examines the influence of monetary policy on interest rates by estimating the effect of changes in the federal funds rate target the federal reserve s policy instrument on market interest rates in the 1970s we find that changes in the target caused large movements in short term rates and smaller but significant movements in intermediate and long term rates we hypothesize that the similarity of the reactions of three six and twelve month rates to changes in the target offers a possible explanation for the lack of support for the expectations theory from studies that have tested the theory using these rates

asset returns discount rate changes and market efficiency the primary purpose of this paper is to reconcile the previous findings of discount rate endogeneity with the presence of discount rate announcement effects in securities markets the crux of this reconciliation is the distinction between technical discount rate changes that are endogenous and nontechnical changes which contain some informative policy implications in essence we attempt to separate expected discount rate changes from unexpected changes or equivalently the expected component of discount rate changes from the unexpected component if markets are efficient the former should have no announcement effects while the latter may be associated with an announcement effect accordingly the focus of the empirical analysis is on the interaction between discount rate exogeneity the specific monetary policy regime and accouncement effects in addition we examine whether the behavior of these markets in the postannouncement period is consistent with the rapid price adjustment implied by market efficiency

the information content of discount rate announcements and their effect on market interest rates this paper presents evidence that throughout the 1973 85 period the federal reserve systematically used certain types of discount rate a nnouncements to signal changes in its policy instrument the federal funds rate market participants understood the signals contained in d iscount rate announcements and used them to revise their expectations of the funds rate these revisions in funds rate expectations caused movements in treasury bill rates copyright 1988 by ohio state university press

the effects of fiscal shocks on employment and the real wage we study the transmission of fiscal shocks in the labor market we employ a structural var and base identification on the restrictions that shocks to government consumption investment and employment must raise output and deficits these restrictions hold in both prototype real business cycle rbc and new keynesian models shocks to government consumption and investment increase real wages and employment contemporaneously both at state level and in the aggregate the dynamics in response to employment shocks are mixed increases in government employment raise the real wage and total employment in the aggregate however in one third of the states they reduce total employment

conference on housing stability and the macroeconomy international perspectives this article provides an introduction to the jmcb special issue on housing bubbles the global financial crisis and the ensuing recessions in countries that experienced housing busts we focus on five themes that are important for policymakers and researchers alike the domestic and international factors driving housing booms and busts the relevance of the housing sector for the real economy how monetary policy should react to housing booms and busts how housing and mortgage finance reform could affect financial stability and the broad lessons learned for macroeconomics and macroprudential policy

what does a technology shock do a var analysis with model based sign restrictions abstract this paper estimates the effects of technology shocks in var models of the u s identified by imposing restrictions on the sign of impulse responses these restrictions are consistent with the implications of a popular class of dsge models with both real and nominal frictions and with sufficiently wide ranges for their parameters this identification strategy thus substitutes theoretically motivated restrictions for the atheoretical assumptions on the time series properties of the data that are key to long run restrictions stochastic technology improvements persistently increase real wages consumption investment and output in the data hours worked are very likely to increase displaying a hump shaped pattern contrary to most of the related var evidence results are not sensitive to a number of specification assumptions including those on the stationarity properties of variables

the information content of discount rate announcements revisited cook and hahn 1988 have argued that discount rate change announcements were used by the federal reserve to signal market participants about movements in the federal funds rate throughout the 1973 79 federal funds rate targeting period they maintained that announced changes in the discount rate provided new information to market participants about subsequent actions of the federal reserve regarding the federal funds rate market participants understood these signals and used them to revise their expectations of the future path of the funds rate which also affected treasuw bill rates however roley and troll 1984 and smirlock and yawitz 1985 have argued that the federal reserve chose to implement policy changes exclusively through the federal funds rate during the funds rate targeting period hence the federal reserve s discount rate policy did not reveal any additional information and thus did not have an effect on market interest rates cook and hahn 1988 found evidence of discount rate announcement effects on bill rates in the pre october 1979 funds rate operating period while both roley and troll and smirlock and yawitz did not these three studies differed in several ways including their discount rate announcement classification procedures l mistiming of five event days 2 and diserent sample starting dates 3 as cook and hahn 1988 table 1 pp 170 171 published

the information content of discount rate announcements what is behind the announcement effect abstract a considerable volume of research shows that asset prices respond to changes in the federal reserve s discount rate while several competing hypotheses have been advanced to explain the market s response to discount rate announcements comparatively little effort has been made to differentiate among alternative hypotheses the result is an abundance of evidence establishing that asset prices respond to discount rate announcements but little if any agreement about why markets respond this article attempts to fill a void in the literature by pointing out how competing hypotheses differ and by constructing tests explicitly designed to differentiate among competing explanations the evidence suggests that the market s reaction to discount rate changes is purely an announcement effect i e a reaction to new information contained in the announcement that the direct effect of discount rate changes on market rates is nil that the announcement effect is invariant to the federal reserve s operating procedure and that generally speaking changes in the discount rate do not signal a change in monetary policy the announcement effect appears to vary with both the nature and extent of the information that the announcement of a discount rate change is believed to contain

promoting entrepreneurship in eastern europe the past decade has seen a revival of entrepreneurship in the modern industrial economies characterized by a wave of enterprise restructuring and of new developments in business and technology in this paper we argue that market transitions of the post socialist economies of eastern europe cannot be successful without similar entrepreneurial restructuring to address the massive structural distortions that still plague the post reform economies the governments of the region must promote entrepreneurship through policies that 1 make use of all possible sources of entrepreneurship including in particular the former state and social sectors and 2 establish a macroeconomic environment and property rights framework conducive to entrepreneurship a successful promotion strategy will need to operate on several fronts by 1 redirecting entrepreneurial activities into legal productive activities 2 increasing the supply and effectiveness of entrepreneurs 3 developing markets for complementary inputs and 4 increasing the demand for entrepreneurship an unsuccessful approach we argue will be one that regards the pre reform small private sector as the only source of entrepreneurship and as the only arena for its productive use

lifting the veil of secrecy from monetary policy evidence from the fed s early discount rate policy traditionally monetary policy has been conducted under a veil of secrecy in its landmark freedom of information act case the federal reserve argued that it needed to delay the disclosure of its policy decisions claiming that immediate disclosure would cause the market to react in a way that was inconsistent with the fed s intentions based on this argument and others the fed was permitted to delay the release of fomc policy decisions most economists however believe that market forces would work to keep equilibrium outcomes more in line with policy maker s intentions if policy makers would announce their intentions and establish a reputation for behaving in a manner consistent with them this paper tests the hypothesis that the market responds more closely to the fed s intentions when the fed makes its intentions known by investigating the market s reaction to a change in discount rate policy in the early 1960s we find that the market responded in a manner inconsistent with the fed s intentions when they were unknown and responds in a manner consistent with them when the fed made its intentions known

technology shocks and robust sign restrictions in a euro area svar we use a model based identification strategy to estimate the impact of technology shocks on hours worked and employment in the euro area the sign restrictions applied in the vector autoregression var analysis are consistent with a large class of dynamic stochastic general equilibrium dsge models and are robust to parameter uncertainty the results are in line with the conventional real business cycle rbc interpretation that hours worked rise as a result of a positive technology shock by comparing the sign restrictions method to the long run restriction approach of gali quaterly journal of economics 1992 709 38 we show that the results do not depend on the stochastic specification of the hours worked series or the data sample but only on the identification scheme

the information content of german discount rate changes abstract discount rate changes always receive considerable attention in financial markets two hypotheses compete to explain financial market reactions the direct borrowing cost effect and the announcement effect for the bundesbank s discount rate changes after 1979 we find that market reactions cannot be attributed to a direct borrowing cost effect but exclusively to announcement effects the empirical results indicate that interest rates react to changes in the discount rate to the extent that they are unanticipated in contrast the response to anticipated changes in the discount rate is small and insignificant we proxy market anticipations by a multinomial logit model combined with a dummy variable capturing non quantifiable factors reported by the financial press moreover we show that the response of interest rates declines along the term structure and with the switch to greater emphasis on repurchase operations in early 1985

discount rate changes and the foreign exchange market abstract changes in the discount rate can have associated announcement effects on the foreign exchange value of the dollar only if these changes are not anticipated by the market this paper provides evidence to support this contention specifically discount rate changes made for reasons other than technical adjustments have not been anticipated fully and consequently their announcements have had a significant impact on the dollar s exchange rate furthermore results are obtained that support the hypothesis that unanticipated discount rate changes alter inflationary expectations

personality characteristics of self employed an empirical study this paper is concerned with the personality characteristics of self employed most existing studies on personality characteristics of entrepreneurs concentrate on factors like age educational profile and motivations to become self employed there is a lack of significant empirical findings to claim that entrepreneurs are psychologically different from the general population based on a large sample of 14 846 individuals we compare self employed with the general population and with wage and salary earners we empirically show that entrepreneurs differ from the general population and wage and salary earners in a number of characteristics entrepreneurs are more individually oriented than the rest of the population individual responsibility and effort are distinguishing characteristics when asked about important qualities that children can be encouraged to learn at home entrepreneurs answer that it is important to teach children an ethic of working hard except for the latter characteristic the same holds if we compare self employed with wage and salary earners

the distinctiveness of entrepreneurship in transition economies this paper is concerned with the distinctiveness of entrepreneurship and small business development in countries that are at different stages of transformation to market based economies following a discussion of the potential relevance of selected conceptualisations of entrepreneurship to transition conditions the authors present original empirical data referring to the characteristics of entrepreneurs and their businesses from countries at different stages of market reform distinctive features of entrepreneurial behaviour identified reflect the unstable and hostile nature of the external environment and the scarcity of key resources particularly capital in an unstable and weakly structured environment informal networks often play a key role in helping entrepreneurs to mobilise resources win orders and cope with the constraints imposed by highly bureaucratic structures and often unfriendly officials moreover the social context inherited from the former socialist period appears to affect both the attitudes and behaviour of entrepreneurs and the attitudes of society at large towards entrepreneurship

estimating the discount rate policy reaction function of the monetary authority this paper estimates a policy rule that explains the sign and the magnitude of the federal reserve s fed s discount rate changes it sets out a two sided type ii tobit model and develops a procedure for its estimation considering the discrete and censored nature of the changes the results suggest that the fed has conducted discount rate policy counter cyclically to influence output and to curb inflation and that the fed s response to policy indicators varies over monetary regimes furthermore consistency is found between the model prediction of the discount rate change and a classification based on whether the change is technical or non technical copyright 1999 john wiley sons ltd