Journal of Money Credit and Banking

Journal of Money, Credit, and Banking 34.2, May 2002

Articles

    Kiley, Michael T.
  • Partial Adjustment and Staggered Price Setting
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    Subject Headings:
    • Prices -- Econometric models.
    Abstract:
      This paper compares Taylor-style staggered price setting to partial adjustment of prices (or Calvo staggering) in a small optimizing IS/LM model. In contrast to the overwhelming perception in the literature, the models are not similar for most parameterizations. In particular, the dynamic response of the economy to shocks is quite different in the two models, and the welfare cost of price rigidity is eight or more times larger in the Calvo model than in the Taylor model (for typical calibrations). Suggestions for calibrations under which the models are more similar are also presented.
    Shy, Oz.
    Tarkka, Juha, 1954-
  • The Market for Electronic Cash Cards
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    Subject Headings:
    • Stored-value cards -- Mathematical models.
    Abstract:
      We develop a theoretical framework aimed to model the pricing of electronic cash cards and the market domain in which these cards will be used in an environment where charge cards and currency (the legal tender) are competing payment media. We also investigate whether the adoption of the various payment media generates an underutilization or overutilization of the electronic cash cards relative to currency.
    Guiso, Luigi.
    Jappelli, Tullio.
  • Private Transfers, Borrowing Constraints, and Timing of Homeownership
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    Subject Headings:
    • Home ownership -- Italy.
    • Intergenerational relations -- Economic aspects -- Italy.
    • Saving and investment -- Italy.
    Abstract:
      The 1991 Italian Survey of Household Income and Wealth contains retrospective information on intergenerational transfers. This information is used to estimate the impact of transfers on the saving time required to purchase a house. It is found that transfers have a small impact on saving time and that after receiving a transfer households purchase considerably larger homes. The results have implications for the debate about the source of the relation between aggregate saving and growth.
    Hamilton, James D. (James Douglas), 1954-
    Kim, Dong Heon, 1966-
  • A Reexamination of the Predictability of Economic Activity Using the Yield Spread
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    Subject Headings:
    • Gross domestic product -- Forecasting.
    • Economic forecasting.
    • Interest rates.
    Abstract:
      This paper revisits the yield spread's usefulness for predicting future real GDP growth. We show that the contribution of the spread can be decomposed into the effect of expected future changes in short rates and the effect of the term premium. We find that both factors are relevant for predicting real GDP growth but the respective contributions differ. We investigate whether the cyclical behavior of interest rate volatility could account for either or both effects. We find that while volatility displays important correlations with both the term structure of interest rates and GDP, it does not appear to account for the yield spread's usefulness for predicting GDP growth.
    Mixon, Franklin Graves, 1965-
    Gibson, M. Troy.
  • The Timing of Partisan and Nonpartisan Appointments to the Central Bank: Some New Evidence
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    Subject Headings:
    • Board of Governors of the Federal Reserve System (U.S.) -- Officials and employees -- Selection and appointment.
    Abstract:
      This paper empirically tests two prevalent but competing theories regarding the timing of appointments to the Board of Governors by presidential administrations. Both theories were developed simultaneously in the economics literature by Havrilesky and Gildea (1992) and Waller (1992) and are observationally equivalent by suggesting that administrations will select partisans early in their four-year terms and nonpartisans (sectoral) later in their four-year terms, although each bases this prediction on a different theoretical model. Several empirical replications (with updated data sets) presented here work to confirm the solutions put forth consistently by both models. However, the results of a new statistical test perhaps lends slightly more credence to the theoretical foundations of Waller's bargaining model.
    Miyao, Ryuzo.
  • The Effects of Monetary Policy in Japan
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    Subject Headings:
    • Monetary policy -- Japan.
    • Japan -- Economic conditions.
    Abstract:
      This article interprets time series facts regarding the sources of business fluctuations in Japan and attempts to uncover possible characteristics of the effects of monetary policy over the last two decades. It argues that given the institutional features of the Bank of Japan's operating procedures, a simple recursive vector autoregressive (VAR) model that consists of interest rates, money, stock prices, and output, all in first differences, may serve as a useful benchmark for Japan. The main finding is that monetary policy shocks in fact have a persistent effect on real output especially in the rise and fall of Japan's "bubble economy" in the late 1980s.
    Ramírez, Carlos D. (Carlos David)
  • Did Banks' Security Affiliates Add Value?: Evidence from the Commercial Banking Industry during the 1920s
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    Subject Headings:
    • Banks and banking -- United States -- History -- 20th century.
    Abstract:
      This paper finds that banks' security affiliates added 4 percent to 7 percent to the market value of commercial banks in 1926 and 1927. This result is robust to the inclusion of a large array of control variables, including risk, regulatory environment, and financial health variables such as the capital-asset ratio and profitability measures. Bank size explains about 40 percent of this premium, thus suggesting that economies of scale were present. The remaining 60 percent of the premium most likely came from economies of scope. This result implies that the Glass-Steagall Act, by disallowing banks' involvement in the securities industry, had a direct cost in lost market value for the commercial banking industry.
    Shea, John, 1964-
  • Complementarities and Comovements
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    Subject Headings:
    • United States -- Economic conditions -- Econometric models.
    • United States -- Economic conditions -- 1945-
    Abstract:
      Short-run interindustry comovement may be due either to common shocks or to complementarities that progagate shocks across sectors. This paper assesses the importance of input-output linkages, aggregate activity spillovers, and local activity spillovers to comovement in postwar U.S. manufacturing. I find that input-output linkages and local activity spillovers are important to comovement, while aggregate activity spillovers are not important. I find that complementarities are important to aggregate volatility, even after I remove observable aggregate shocks from the data. Local spillovers are particularly important, explaining between 15 and 36 percent of manufacturing employment volatility. The importance of local spillovers stems from the fact that industries that cluster together in space also comove through time, contrary to the Marshallian idea that industries with negatively correlated fluctuations should cluster together in order to stabilize local demand.
    Tambakis, Demosthenes N. (Demosthenes Nicholas), 1968-
  • Expected Social Welfare under a Convex Phillips Curve and Asymmetric Policy Preferences
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    Subject Headings:
    • Monetary policy -- United States -- Mathematical models.
    • Public welfare -- United States -- Mathematical models.
    • Phillips curve.
    Abstract:
      This paper evaluates the expected social welfare implications of monetary policy with a convex Phillips curve under a symmetric loss function and an asymmetric loss function corresponding to the "opportunistic approach" to disinflation. The convex--asymmetric specification yields an inaction range of inflation shocks for which the optimal monetary policy setting does not adjust. For parameter estimates relevant to the United States, numerical simulations show that the symmetric loss function dominates the asymmetric alternative in expected social welfare terms. Asymmetric policy preferences enhance social welfare only under extreme parameter values. This result is robust to sensitivity analysis with respect to inflation variability and the degrees of Phillips curve convexity and preference asymmetry, thereby supporting arguments for a tough anti-inflationary stance by the Federal Reserve regardless of the "true" social loss function.
    Temple, Jonathan.
  • Openness, Inflation, and the Phillips Curve: A Puzzle
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    Subject Headings:
    • Free trade -- Mathematical models.
    • Phillips curve.
    Abstract:
      Models of open economies with nominal rigidities are often thought to predict a correlation between openness to trade and the slope of the output-inflation trade-off, or Phillips curve. Using a variety of measures of the trade-off and a standard measure of openness, this paper argues that the direct evidence for a correlation is not strong. In turn, this calls into question the usual explanation for the negative correlation between openness and inflation that was documented by Romer (1993). The paper considers some alternative explanations for the Romer evidence.
    Van Tassel, Eric.
  • Signal Jamming in New Credit Markets
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    Subject Headings:
    • Credit analysis -- Mathematical models.
    Abstract:
      This paper develops a simple two-period model in which a lender's credit operations in a new market end up externalizing information on borrowers' repayment capabilities. This information improves the competitive position of outside lenders by allowing them to enter the credit market with a more accurate description of potential clients. Equilibrium strategies are then identified where an inside lender chooses to offer a costly first-period contract with the explicit objective of distorting the quality of the external information flow in the second period.
    Flandreau, Marc.
  • "Water Seeks a Level": Modeling Bimetallic Exchange Rates and the Bimetallic Band
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    Subject Headings:
    • Bimetallism.
    Abstract:
      Arbitrage costs are usually treated as a mere footnote in formal analyses of bimetallism. At the same time, recent empirical research has demonstrated their key importance, since they produced a "bimetallic band." This paper provides the first model of bimetallism that takes this explicitly into account and uses it to explain a number of stylized features of the French bimetallic experience, 1850-1870. First, the model explains the association between the location of the price ratio within its band and the nature (either cross or joint) of specie flows. Second, it explains the correlation between bimetallic exchange rates and the bimetallic ratio. And third, it explains the two-humps distribution of the bimetallic ratio. This analysis leads to a reconsideration of bimetallism: the fluctuations of the price ratio are no longer evidence of the collapse of bimetallism, but are part of the normal functioning of a bimetallic system.
    Faust, Jon.
    Svensson, Lars E. O.
  • The Equilibrium Degree of Transparency and Control in Monetary Policy
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    Subject Headings:
    • Banks and banking, Central.
    • Monetary policy -- Mathematical models.
    Abstract:
      We examine a central bank's endogenous choice of degree of control and degree of transparency, under both commitment and discretion. We argue that discretion is the more realistic assumption for the choice of control and that commitment is more realistic for the choice of transparency. For the choice of control, under discretion maximum degree of control is the only equilibrium. For the choice of transparency, under commitment, a sufficiently patient bank with sufficiently low average inflation bias will always choose minimum transparency. Thus, a maximum feasible degree of control with a minimum degree of transparency is a likely outcome. The Bundesbank and the Federal Reserve System are, arguably, examples of this.
    Hooker, Mark A.
  • Are Oil Shocks Inflationary?: Asymmetric and Nonlinear Specifications versus Changes in Regime
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    Subject Headings:
    • Petroleum products -- Prices -- United States.
    • Inflation (Finance) -- United States -- Mathematical models.
    Abstract:
      This paper identifies a structural break in core U.S. inflation Phillips curves such that oil prices contributed substantially before 1981, but since that time pass-through has been negligible. This characterization is robust to a variety of re-specifications and fits the data better than asymmetric and nonlinear oil price alternatives. Evidence does not support the hypotheses that declining energy intensity or deregulation of energy-producing and -consuming industries played an important role. Monetary policy did not itself become less accommodative of oil shocks, but may have helped create a regime where inflation is less sensitive to price shocks more generally.



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