Journal of Money Credit and Banking

Journal of Money, Credit, and Banking
Volume 37, Number 2, March 2005

CONTENTS

Articles

    Berger, Allen N.
    Frame, W. Scott.
    Miller, Nathan H.
  • Credit Scoring and the Availability, Price, and Risk of Small Business Credit
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    Subject Headings:
    • Credit scoring systems -- United States -- Econometric models.
    • Small business -- United States -- Finance -- Econometric models.
    • Banks and banking -- United States -- Econometric models.
    Abstract:
      We find that small business credit scoring (SBCS) is associated with expanded quantities, higher averages prices, and greater average risk levels for small business credits under $100,000, after controlling for bank size and other differences across banks. We also find that: (1) bank-specific and industry learning curves are important; (2) SBCS effects differ for banks that adhere to "rules" versus "discretion" in using the technology; and (3) SBCS effects differ for larger credits. The data do not support two alternative explanations of the main results under which the findings primarily represent statistical artifacts, rather than significant changes in lending behavior.
    Keywords:
      banks, credit scoring, small business, risk
    Jappelli, Tullio.
    Pagano, Marco.
    Bianco, Magda.
  • Courts and Banks: Effects of Judicial Enforcement on Credit Markets
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    Subject Headings:
    • Credit -- Law and legislation -- United States.
    • Banking law -- United States.
    Abstract:
      The cost of enforcing contracts is a key determinant of market performance. We document this point with reference to the credit market in a model of opportunistic debtors and inefficient courts. According to the model, improvements in judicial efficiency should reduce credit constraints and increase lending, with an ambiguous effect on interest rates that depends on banking competition and on the type of judicial reform. These predictions are supported by panel data on Italian provinces. In provinces with longer trials or large backlogs of pending trials, credit is less widely available.
    Keywords:
      enforcement, judicial efficiency, credit market, interest rates
    Rudebusch, Glenn D., 1959-
  • Assessing the Lucas Critique in Monetary Policy Models
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    Subject Headings:
    • Lucas, Robert E. Econometric policy evaluation: a critique.
    • Lucas, Robert E., ed. Rational expectations and econometric practice.
    • Sargent, Thomas J., ed.
    • Monetary policy -- United States -- Mathematical models.
    • Rational expectations (Economic theory) -- United States -- Mathematical models.
    Abstract:
      Empirical estimates of monetary policy rules suggest that the behavior of U.S. monetary policymakers changed during the past few decades. However, for that same time period, statistical analyses of lagged representations of the economy, such as VARs, often have not rejected the null of structural stability. These two sets of empirical results appear to contradict the Lucas critique. This paper reconciles these results with the Lucas critique by showing that the apparent policy invariance of reduced forms is consistent with the magnitude of historical policy shifts and the relative insensitivity of the reduced forms of plausible forward-looking macroeconomic specifications to policy shifts.
    Keywords:
      Parameter stability, deep parameters, Taylor rule
    Wolman, Alexander L.
  • Real Implications of the Zero Bound on Nominal Interest Rates
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    Subject Headings:
    • Monetary policy -- Mathematical models.
    • Deflation (Finance) -- Mathematical models.
    • Interest rates -- Effect of inflation on -- Mathematical models.
    • Prices -- Mathematical models.
    Abstract:
      If monetary policy succeeds in keeping average inflation very low, nominal interest rates may occasionally be constrained by the zero lower bound. The degree to which this constraint has real implications depends on the monetary policy feedback rule and the structure of price setting. Policy rules that make the price level stationary lead to small real distortions from the zero bound. If policy imparts persistence into the inflation rate, the real implications of the zero bound are large in the presence of backward-looking price setting and small if prices are set to maximize profits.
    Keywords:
      Zero bound, monetary policy, deflation, interest rates, price-level stationarity
    Rudd, Jeremy Bay, 1970-
    Whelan, Karl.
  • Does Labor's Share Drive Inflation?
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    Subject Headings:
    • Phillips curve.
    • Monetary policy -- United States -- Mathematical models.
    • Labor costs -- United States -- Mathematical models.
    • Price regulation -- United States -- Mathematical models.
    Abstract:
      A number of researchers have recently argued that the new-Keynesian Phillips curve matches the empirical behavior of inflation well when the labor income share is used as a driving variable, but fits poorly when deterministically detrended output is used. The theoretical motivation for these results rests on the idea that the output gap—the deviation between actual and potential output—is better captured by the labor income share, in turn implying that central banks should raise interest rates in response to increases in this variable. We show that the empirical evidence generally suggests that the labor share version of the new-Keynesian Phillips curve is a very poor model of price inflation. We conclude that there is little reason to view the labor income share as a good measure of the output gap, or as an appropriate variable for incorporation in a monetary policy rule.
    Keywords:
      Phillips curve, sticky prices, marginal cost, output gap
    Apel, Mikael.
    Friberg, Richard, 1967-
    Hallsten, Kerstin.
  • Microfoundations of Macroeconomic Price Adjustment: Survey Evidence from Swedish Firms
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    Subject Headings:
    • Prices -- Sweden -- Mathematical models.
    • Business cycles -- Sweden -- Mathematical models.
    Abstract:
      This paper presents the results of a survey on price-setting behavior conducted on a large random sample of Swedish firms. The median firm adjusts the price once a year. State- and time-dependent price setting are about equally important. The four highest-ranked explanations for price rigidity in this study (implicit contracts, sluggish costs, explicit contracts, and the kinked demand curve) have close correspondents among the top five places in two similar large-scale surveys carried out in the UK and the U.S. The results point to the importance of the long-term relations with customers for the rigidity of prices (the estimated share of sales that go to regular customers is more than 80%).
    Keywords:
      nominal rigidity, price rigidity, price setting, real rigidity, time-dependent pricing, state-dependent pricing
    Tirtiroglu, Dogan.
    Daniels, Kenneth N.
    Tirtiroglu, Ercan.
  • Deregulation, Intensity of Competition, Industry Evolution, and the Productivity Growth of U.S. Commercial Banks
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    Subject Headings:
    • Bank holding companies -- Deregulation -- United States -- History -- 20th century.
    • Banks and banking -- United States -- History -- 20th century.
    • Kalman filtering.
    Abstract:
      We study the influence of the evolution in intrastate and interstate deregulations on the total factor productivity growth of U.S. commercial banking during 1971-95. We consider statewide deregulations in intrastate branching, intrastate multibank holding company (MBHC), interstate multibank holding company, and interstate MBHC de novo branching regulations. Results indicate that (1) long-standing banking restrictions negatively affected banks' productivity growth, and (2) relaxing restrictions on intrastate branching expansion had a positive long-run influence upon banks' productivity growth. The effect of interstate MBHC deregulations is largely short run, and it is negative in the long run for interstate MBHC de novo branching deregulations.
    Keywords:
      deregulation, productivity growth, commercial banks, kalman filter

Shorter Papers, Discussions, and Letters

    Lopez, Claude.
    Murray, Christian Joseph, 1970-
    Papell, David H.
  • State of the Art Unit Root Tests and Purchasing Power Parity
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    Subject Headings:
    • Purchasing power parity -- Mathematical models.
    • Regression analysis -- Mathematical models.
    • Time-series analysis -- Mathematical models.
    • Economics, Mathematical.
    Abstract:
      Although the question of whether Purchasing Power Parity (PPP) holds in the long run has been extensively studied, the answer is still controversial. Some of the strongest evidence is provided by Taylor (The Review of Economics and Statistics 84[[2002] 139-150), who concludes that long-run PPP held over the 20th century. We argue that this conclusion is quite sensitive to the use of sub-optimal lag selection in unit root tests. Using superior lag selection methods, we find that long-run PPP held for the real exchange rates of only 9 out of the 16 industrialized countries in Taylor's sample with the U.S. dollar as the base currency.
    Keywords:
      Purchasing power parity, unit root tests, lag selection
    Daniels, Joseph P.
    Nourzad, Farrokh.
    VanHoose, David D.
  • Openness, Central Bank Independence, and the Sacrifice Ratio
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    Subject Headings:
    • Monetary policy.
    • Inflation (Finance)
    • Banks and banking, Central.
    Abstract:
      Traditional explanations of the negative correlation between openness and inflation presume that an inverse relationship between the degree of openness and the sacrifice ratio reduces the inflation bias of descretionary monetary policy. Temple (2002) concludes, however, that such a relationship fails to emerge in cross-country data. Our analysis of the same cross-country data considered by Temple indicates that once the degree of central bank independence and its interaction with greater openness and the sacrifice ratio. In addition, increased openness lessens the positive effect of central bank independence on the sacrifice ratio.
    Keywords:
      openness, sacrifice ratio



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