Working Paper 9019 top
Tastes and Technology in A Two-Country Model of the Business Cycle: Explaining international Co-Movements
by Alan C. Stockman and Linda L. Tesar
PDF file 1,965K
Working Paper 9018 top
Prointegrative Subsidies and Their Effect on Housing Markets: Do Race-Based Loans Work?
by Brian A. Cromwell
An analysis of the effects of race-based housing subsidies on racial composition and housing prices, examining their impacts in Shaker Heights, Ohio.
PDF file 1,426K
Working Paper 9017 top
An Insider's View of the Political Economy of the Too Big To Fail Doctrine
by Walker F. Todd and James
B. Thomson
An explanation of the relationship between interbank exposure and the too big to fail doctrine, with an examination of the interbank exposure of U.S. banks between March 1984 and March 1990.
PDF file 2,310K
Working Paper 9016 top
Some Problems of Infinite Regress in Social-Choice Models: A Category Theory Solution
by Fadi Alameddine
An analysis of the infinite regress that appears in the statement of Gauthier's bargaining approach to social choice. the author shows how category theory provides the tools for constructing the appropriate bargaining models by furnishing a setting for the concepts of continuity, limits, and fixed points.
PDF file 825K
Working Paper 9015 top
Loan Commitments and Bank Risk Exposure
by Robert B. Avery and Allen N. Berger
Loan commitments increase a bank's risk by obligating it to issue future loans under terms that it might otherwise refuse. However, moral hazard and adverse selection problems potentially may result in these contracts being rationed or sorted. Depending on the relative risks of the borrowers who do and do not receive commitments, commitment loans could be safer or riskier on average than other loans. the empirical results indicate that commitment loans tend to have slightly better than average performance, suggesting that commitments generate little risk or that this risk is offset by the selection of safer borrowers.
PDF file 1,065K
Working Paper 9014 top
Cointegration and Transformed Series
by Jeffrey J. Hallman
An explanation of how to use nonparametric techniques to search for and test possible cointegrating transformations of time series.
PDF file 920K
Working Paper 9013 top
What Does the Capital Income Tax Distort?
by Jinyong Cai and Jagadeesh Gokhale
in addition to taxing future consumption (including leisure), capital income taxation subsidizes the consumption of durables. the taxation of future consumption may be characterized as an intertemporal distortion, while the subsidy to durables may be characterized as a static distortion. the magnitude of this intertemporal distortion has received considerable attention, but few analyses have dealt with the static distortion.
This paper decomposes the excess burden arising from capital income taxation into its static and intertemporal components. the analysis is based on a life-cycle model with a constant elasticity of substitution utility function in one durable and one nondurable good. Calculations indicate that for reasonable utility parameters, the static component of the excess burden is of the same order of magnitude as the intertemporal component. in the case of major durable goods such as housing, which have relatively low depreciation rates, the static component is large and may exceed the intertemporal component. This suggests that an additional tax on the purchase of new durable goods would significantly reduce the overall excess burden arising from a capital income tax.
PDF file 660K
Working Paper 9012 top
The Effect of Subordinated Debt and Surety Bonds on Banks' Cost of Capital and on the Value of Federal Deposit Insurance
by William P. Osterberg and James
B. Thomson
This paper examines two proposals to correct the risk-taking incentives embedded in the current deposit insurance system and to provide protection to the deposit insurance fund. the first would require banks to issue subordinated debt, and the second would require bank stockholders to post surety bonds. We use the cash-flow version of the Capital Asset Pricing Model to show how each proposal would affect the values and rates of return on uninsured deposits and equity. We then indicate the impact that each proposal would have on the values of the Federal Deposit insurance Corporation claim and on the bank, emphasizing the role of deposit insurance pricing.
PDF file 675K
Working Paper 9011 top
Information and Voting Power in the Proxy Process
by Sanjai Bhagat and Richard H. Jefferis
We document shareholder support for wealth-decreasing changes in corporate governance in the form of antitakeover charter amendments. the enactment of these amendments is shown to be related to ownership structure. This gives rise to a sample selection bias that contaminates traditional event-study results and explains the discrepancy between our findings and those reported in previous studies. We also provide evidence that strategic behavior by managers plays a role in the adoption of these amendments.
PDF file 2,090K
Working Paper 9010 top
Consumption and Fractional Differencing: Old and New Anomalies
by Joseph G. Haubrich
A calculation of the stochastic properties of consumption when income follows a fractional stochastic process, showing how this may explain excess-smoothness results noted in previous studies
PDF file 780K
Working Paper 9009 top
Intervention and the Foreign Exchange Risk Premium: An Empirical investigation of Daily Effects
by Owen F. Humpage
and William P. Osterberg
Currency markets have witnessed a sharp increase in government intervention since 1985. Many observers believe that this intervention promoted the dollar's depreciation between 1985 and early 1987, and that intervention has since helped to stabilize dollar exchange rates. This paper tests for a systematic effect of daily dollar intervention on exchange rate risk premia. We test for both portfolio balance effects and signaling influences by using daily data on central bank intervention (in dollars) against both the yen and the West German mark. Following work by Dominguez (1989) and Loopesko (1984), we measure the daily risk premium in terms of the deviation from uncovered interest parity. However, we follow other empirical analyses of exchange rates and allow for generalized conditional autoregressive heteroscedasticity (GARCH). Some evidence is found for both the portfolio balance and signaling channels.
PDF file 670K
Working Paper 9008 top
Sticky Prices, Money, and Business Fluctuations
by Joseph G. Haubrich
and Robert G. King
Can nominal contracts create monetary nonneutrality if they arise endogenously in general equilibrium? Yes, if (1) agents have complete information about the money stock and (2) shocks to the system are purely redistributive and private information, precluding conventional insurance markets. Without contracts, money is neutral toward aggregate quantities. However, risk-sharing between suppliers and demanders creates an incentive for both parties to use nominal contracts. in particular, if an increase in the money growth rate signals a rise in the dispersion of shocks to demanders' wealth, then prices adjust only partially to monetary shocks and money is positively associated with output.
PDF file 995K
Working Paper 9007 top
Optimal Financial Structure and Bank Capital Requirements: An Empirical Investigation
by William P. Osterberg and James
B. Thomson
This paper presents an empirical analysis of the determinants of the leverage ratios (the book value of liabilities divided by the total of the book value of liabilities' and the market value of equity) for 232 bank holding companies for December 1986, June 1987, and December 1987. Many theoretical models of bank behavior assume that bank capital requirements will be binding, and empirical research has generally shown that almost all- banks will meet capital guidelines. However, if the optimal leverage ratios differ among banks, then banks' responses to changes in capital requirements or to changes in factors that influence their optimal leverage ratio may vary in a cross section. the theoretical framework is a variant of the one developed in Bradley, Jarrell , and Kim (1984) . the optimal' leverage ratio balances the tax advantage of debt with the costs of bankruptcy. in addition to considering nondebt tax shields and tax rates as determinants of the optimal ratio, we analyze the simultaneity between leverage and investment in municipal securities (munis). Previous research indicates that banks utilize munis to' minimize tax liabilities.
PDF file 1,330K
Working Paper 9006 top
Inflation and the Personal Tax Code: Assessing Indexation
by David Altig and
Charles T. Carlstrom
A reexamination of the potential costs of anticipated inflation in view of the inflation indexing system established during the 1980s.
PDF file 1,325K
Working Paper 9005 top
In Defense of Zero Inflation
by William T. Gavin
An argument supporting zero inflation as the sole objective of monetary policy, with particular emphasis on the Bank of Canada's commitment to an explicit, low inflation target.
PDF file 840K
Working Paper 9004 top
Cross-Sectional Analysis of Public infrastructure and Regional Productivity Growth
by Randall W. Eberts
An analysis of the relationship between local public capital stock and regional manufacturing output, inputs, and productivity between 1965 and 1977. Results show that the effect of public capital stock on regional productivity, although limited, cannot be dismissed, and that public infrastructure appears to be a major factor in explaining growth rates of inputs.
PDF file 850K
Working Paper 9003 top
Failed Delivery and Daily Treasury Bill Returns
by Ramon P. DeGennaro and James T. Moser
If the seller of a Treasury bill does not provide timely and correct delivery instructions to the clearing bank, the bank does not deliver the security. Further, the seller is not paid until this "failed delivery" is rectified. Since the purchase price is not changed, these "fails" generate interest-free loans from the seller to the buyer.
This paper studies the effect of failed delivery on Treasury-bill prices. We find that investors bid prices to a premium to reflect the possibility of obtaining the interest-free loans that fails represent. This premium is a function of the opportunity cost of the fail. We also find that the bid-ask spread varies directly with the length of the fail. We rule out the possibility that our results are due to liquidity premiums, or to a general weekly pattern in short-term interest rates or the bid-ask spread.
PDF file 1,110K
Working Paper 9002 top
On the Choice of the Exchange-Rate Regimes
by Chien Nan Wang
This paper utilizes recent research developments in portfolio balance theory and in real exchange-rate instability to synthesize, update, and test the optimum currency area (OCA) theory. Four hypotheses, capturing the central features of the OCA theory, are advanced and tested in a multinomial-logit setup. the empirical results establish the linkage between a fixed rate and financial integration, trade integration, plus inflation convergence. the Mundell-Fleming ranking of regime is refuted in a fundamental way. these findings are applied to a discussion of European monetary integration, in relation to both its final objective and its intermediate procedure.
PDF file 1,180K
Working Paper 9001 top
The Determinants of Commercial Bank Holdings of Municipal Securities: 1985-1988
by William P. Osterberg
This paper presents an empirical analysis of commercial bank holdings of municipal securities (munis) from June 1985 through December 1988, using the FFIEC's Reports of Condition and income. While motivated by previous analyses suggesting that a shift from munis to taxable securities is a primary determinant of the overall impact of the Tax Reform Act of 1986 on bank profitability, this paper does not directly analyze the impact of that legislation. However, the paper modifies the specification of muni demand employed in previous analyses to consider roles for state pledging requirements, realization of capital gains or losses, and the simultaneous provision for loan losses. the results provide some support for including state pledging requirements, realization of capital gains and losses, and the loan loss provisions in analyses of muni holdings.
PDF file 1,030K
1989 1990 1991
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