Credit and Economic Activity: Shocks or Propagation Mechanism?
Nathan S. Balke and Chih-Ping Chang
Published as: Balke, Nathan S. (2000), "Credit and Economic Activity: Credit Regimes and Nonlinear Propagation of Shocks?" The Review of Economics and Statistics 82 (2): 344-349.
Targeting Nominal Income: A Closer Look
Evan F. Koenig
Published as: Koenig, Evan F. (1996), "Targeting Nominal Income: A Closer Look," Economics Letters 51 (1): 89-93.
Abstract: I derive conditions under which the monetary authority should target nominal spending. The relevant spending target is a weighted average of income and consumption. Despite ‘sticky’ nominal wages, under optimal policy the economy behaves as if all markets clear.
Hyperinflations and Moral Hazard in the Appropriation of Seigniorage: An Empirical Implementation with a Calibration Approach
Carlos E. Zarazaga
The Stock Market and Monetary Policy: The Role of Macroeconomic States
Chih-Ping Chang and Huan Zhang
Monetary Policy, Banking, and Growth
Joseph H. Haslag
Published as: Haslag, Joseph H. (1998), "Monetary Policy, Banking, and Growth," Economic Inquiry 36 (3): 489-500.
Abstract: There is ample empirical evidence suggesting that countries with high inflation tend to grow slower than countries with low inflation. Based on the regression evidence, the inflation-rate effect is fairly large; on average, per-capita real GDP grows between 1/4- and 3/4-percentage-points slower in a country in which the average inflation rate is 10% as compared with a country in which inflation is 0%. The purpose of this paper is to determine whether a model economy that is reasonably calibrated can account for such large inflation-rate effects. The answer is yes.
Credit Availability, Bank Consumer Lending, and Consumer Durables
John V. Duca and Bonnie Garrett
Abstract: This study tests the empirical implications of a modified screening model of lending [Stiglitz and Weiss (1-981, Part IV) ] using a proxy for nonrate credit conditions based on Federal Reserve survey data. Consistent with screening models, this proxy (1) significantly affects bank consumer lending, (2) is significantly affected by the real federal funds rate and ex ante default risk measures, and (3) substantially affects consumer durables. Other results indicate that deposit rate deregulation has reduced the impact of monetary policy on consuner credit availability and consumer durable spending.
The Interest Sensitivity of GDP and Accurate Reg Q Measures
John V. Duca
Abstract: This study constructs Reg Q measures that account for the introduction of small saver certificates in 1979 and money market certificates in 1978. In nonVAR models, not properly accounting for Reg Q upwardly biases the estimated real rate elasticity of U.S. GDP and yields rate elasticities that are not stable enough for practical use. Although the impact of real funds rate innovations remains sensitive to sample period, accurately measured Reg Q innovations are significant in VARs and, in contrast to innovations in a naive Reg Q measure, have impulse response functions that do not change much as samples are extended beyond the early 1980s.
Regulatory Changes and Housing Coefficients
John V. Duca
Abstract: This study assesses whether regulatory actions account for major changes in estimates of important housing coefficients since the late-1970s. Results imply that the bulk of these changes owe to the end of Reg Q and that Reg Q measures need to account for the introduction of deposit instruments in the late-1970s. Findings imply that models of the aggregate housing stock are unlikely to yield coefficients that are stable enough for practical use unless they accurately control for regulatory changes. In this regard, accounting for small saver or money market certificates yields significant improvements over a naive Reg Q measure.
A Comparison of Alternative Monetary Environments
Joseph H. Haslag
Abstract: : In many macroeconomic models, agents hold fiat money balances, despite being rate-of-return dominated, to satisfy either a cash-in-advance constraint or reserve requirements. In this paper, I compare the allocations from the two different economies. Despite the inherent differences in these two modelling approaches, the alternative monetary environments are equivalent in the sense that one can obtain identical equilibrium allocations. This equivalence result hold for a particular combination of monetary policy variables; that is, namely, there is a combination policy characterized by the inflation rate and reserve requirement ratio such that the reserve-requirement model is equivalent to other monetary environments.
Oil Prices and Inflation
Stephen P.A. Brown, David B. Oppedahl and Mine K. Yücel
Abstract: This article uses impulse response functions based on a vector autoregressive model of the U.S. economy to analyze how oil price shocks move through major channels of the economy to affect inflation. The model represents the interactions between oil prices, real GDP, a monetary aggregate, short-term interest rates, the spread between long- and short-term interest rates, and the GDP deflator for the period 1970 through 1994. The responses of the model to monetary and interest rate shocks generally conform to economic theory. The analysis shows that oil price shocks have permanent effects on the price level and nominal GDP. These findings suggest that during the estimation period, monetary policy generally accommodated the inflationary pressure of oil price shocks.
Are Deep Recessions Followed by Strong Recoveries? Results for the G-7 Countries
Nathan S. Balke and Mark A. Wynne
Published as: Balke, Nathan S. and Mark A. Wynne (1996), "Are Deep Recessions Followed by Strong Recoveries? Results for the G-7 Countries," Applied Economics 28 (7): 889-897.
Abstract: The hypothesis is examined that the severity of a recession favourably affects the rate of growth of output during the period immediately after the recession. Our empirical analysis is based on the behaviour of industrial output in the G-7 countries during the period 1960 to 1985. The depth of a recession, defined as the cumulative output loss between the peak and trough dates, is shown to be negatively correlated with growth in the first 12 months of the subsequent expansion.
The Role of Intratemporal Adjustment Costs in a Multi-Sector Economy
Gregory W. Huffman and Mark A. Wynne
Published as: Huffman, Gregory W. and Mark A. Wynne (1999), "The Role of Intraemporal Adjustment Costs in a Multisector Economy," Journal of Monetary Economics 43 (2): 317-350.
Abstract: A multi-sector business cycle model is constructed which is capable of reproducing the procyclical behavior of cross-industry measures of capital, employment, and output. It is shown that some variants of conventional business cycle models may not be capable of reproducing these facts. It is then shown how the introduction of intratemporal adjustment costs can be crucial to such a model. These costs imply that it is difficult or costly to alter the composition of the capital goods that are produced. The presence of these costs eliminates many counterfactual observations ofthe model that would otherwise be present. The dynamic response of variables in the model is different from what one would observe in the standard one-sector model. The effect of including intratemporal adjustment costs for labor as well is also analyzed.
Alternative Methods of Corporate Control in Commercial Banks
Abstract: In this article, Stephen Prowse investigates how owners of commercial banks encourage management to follow value-maximizing policies. While the "corporate control mechanism" in nonfinancial firms is well documented, for the banking industry much less evidence is available. Moreover, unique factors in the operating environment of commercial banks may mean that their corporate control mechanism operates differently from that of nonfinancial firms. ; Prowse analyzes a sample of bank holding companies (BHCs) from 1987 to 1992 to determine how many underwent a change in corporate control by hostile takeover, friendly merger, action by the board of directors, or intervention by regulators. Prowse finds that the primary market-based corporate control mechanism among BHCs is action by the board, although bank boards appear to be much less assertive than boards of nonfinancial firms. Overall, the market-based corporate control mechanisms in banks do not appear as efficient at disciplining managers as they are in other firms. By default, this has given a primary role to regulators to provide a "last resort" control mechanism. Prowse analyzes reasons for this and evaluates how proposed banking legislation might affect corporate governance.
On Competition and School Efficiency
Shawna Grosskopf, Kathy Hayes, Lori L. Taylor and William L. Weber
Abstract: A substantial literature indicates that the public school system in the United States is inefficient. Some have posited that this inefficiency arises from a lack of competition in the education market. On the other hand, the Tiebout hypothesis suggests that public schools already face significant competition. In this paper, the authors examine the extent to which competition for students influences the distribution of public school inefficiency in Texas. They use a Shephard input distance function to model educational production and use bootstrapping techniques to test for technical, allocative and scale inefficiencies. The authors find evidence of substantial inefficiency in the Texas school systen but only weak and inconsistent evidence that competition for enrollment enhances school district efficiency
Building Trade Barriers and Knocking Them Down: The Political Economy of Unilateral Trade Liberalizations
David M. Gould and Graeme L. Woodbridge
Published as: Gould, David M. and Graeme L. Woodbridge (1997), "Building Trade Barriers and Knocking Them Down: The Political Economy of Unilateral Trade Liberalizations," Review of International Economics 5 (2): 256-271.
Abstract: This paper examines the dynamic behavior of trade protection and liberalization. Consistent with evidence on the development of trade policies, policy decisions are modeled as the outcome of a political contest between import-competing interests and exporters. Uncertainty about the success of political contests yields a dynamic equilibrium in which tariffs gradually increase over time. Eventually, increasing tariffs reduce profits in the exporting sector to such a degree that exporters enter the political arena and lobby actively against protection. Depending on the market characteristics, a political contest may generate a liberalization or a move toward autarky.
Building a Regional Forecasting Model Utilizing Long-Term Relationships and Short-Term Indicators
Keith R. Phillips and Chih-Ping Chang
Abstract: Chang and Phillips develop a simple labor-demand error correction model of regional employment growth. The model is constructed to forecast well at both long-term and short-term horizons. In developing the model, we utilize past research which has found that relative nominal wages play an important role in explaining why some regions consistently grow faster than others. The variables in the model include regional employment, u.s. employment, an industry-adjusted relative wage measure, and a regional leading index. While the wage variable is used to capture long-term shifts in relative labor demand, the leading index is included to control for shorter-term cyclical shocks. Out-of-sample forecast errors from the model are shown to be smaller than errors from a model suggested by LeSage (1990a) which divides regional employment into base and nonbase and estimates a bivariate error-correction model.
Country-Bashing Tariffs: Do Bilateral Trade Deficits Matter?
W. Michael Cox and Roy J. Ruffin
Published as: Cox, W. Michael and Roy J. Ruffin (1998), "Country-Bashing Tariffs: Do Bilateral Trade Deficits Matter," Journal of International Economics 46 (1): 61-72.
Abstract: This paper investigates the impact of restricting bilateral trade imbalances in a three country, three good model. Bilateral trade balances matter because, in the Nash equilibrium, each country will impose tariffs on countries with whom they have bilateral deficits or promote trade with countries with whom they have bilateral surpluses. All countries lose from a Nash country-bashing war. Each country loses from the unilateral elimination of its bilateral imbalances. But a country can gain from a bilateral agreement with its deficit partner provided that country has a surplus with a country devoted to free trade.
Inflation and Intermediation in a Model with Endogenous Growth
Joseph H. Haslag
Abstract: In this paper, I examine the effects that changes in money growth/inflation have on inside money and capital accumulation in a general equilibrium model. Money is held to meet a cash-in-advance constraint and a reserve requirement. A change in the inflation rate will,in general, affect the ratio of inside money to outside money (the money multiplier). The data indicate a small, negative relationship between changes in the inflation rate and the money multiplier. The model can replicate this stylized observation provided the computational experiments impose enough complementarity between the cash good and credit good. In addition, the model predicts that an anticipated increase in the inflation rate causes agents to substitute unintermediated capital fiat money for unintermediated capital (disintermediation). Disintermediation occurs over time in the sense that intermediated capital grows at a slower rate in the higher inflation environment. In this setup, the model is also capable of replicating Goldsmith's observation; the ratio of intermediaries' assets to output rises over time.
An Equilibrium Analysis of Central Bank Independence and Inflation
Gregory W. Huffman
Published as: Huffman, Gregory W. (1997), "An Equilibrium Analysis of Central Bank Independence and Inflation," Canadian Journal of Economics 30 (4): 943-958.
Abstract: A dynamic equilibrium model is constructed to analyse the implications of different degrees of central bank independence. In the main model, agents are permitted to vote on the desired inflation and labour taxes to finance government spending. Multiple perfect-foresight equilibria arise, and one of them exhibits fluctuations in output, investment, and the inflation rates as a result of permitting agents to vote. If, instead of having agents vote each period on these parameters, inflation and labour taxes in the model are set at fixed levels, these fluctuations do not arise, and a lower inflation rate can appear.