Search

This study shows that demand for money is a function not only of interest rate, real exchange rate, and personal consumption but also of fiscal variables like deficit, debt, and foreign-financed debt. It is stable over the short and long run. This study also covers the investigation of policy invariance of money demand, an important issue ignored so far in the existing literature on the demand for money in the United States. It was found that the behavior of agents in the money market changes as the real exchange rate, consumption, and interest rate change. Namely, agents in the money market are forward-looking, and their expectations are formed rationally. This also means that even though the parameters of money demand are stable, according to the stability test results, they can be unstable, as agents adapt their behavior based on any change in the exchange rate, consumption, and/or interest rate. In other words, the contemporaneous real exchange and interest rate variables are not superexogenous in demand for M1, and the contemporaneous consumption is not superexogenous in demand for M2. [ABSTRACT FROM AUTHOR]

It is widely argued that shadow banking grew rapidly before the recent financial crisis because of rising demand for "money-like" claims. This paper assesses a key premise of this argument: that investors actually treated short-term debt issued by shadow banks as a money-like claim. I present a model where the financial sector and the central bank jointly respond to demand for money-like claims. The model generates predictions about the prices and quantities of Treasury bills, central bank reserves, and shadow bank debt. These predictions are borne out in the data, suggesting investors did treat shadow bank debt as money-like. [ABSTRACT FROM AUTHOR]

Using a multifactor continuous‐time model, we study the impact of the global financial crisis on the information transmission mechanism between interest rate and equity markets in the United States and each of the four major economies (United Kingdom, Japan, Germany and Canada). The exchange of information through the return channel shows that the equity markets communicate differently with the short‐ and long‐term interest rate markets: the linkages between the equity and money markets follow similar patterns across all four major economies, whereas the feedbacks between the returns on equity and bond markets suggest country‐specific relationships with the United States. The level of interdependence is higher between the equity and long‐term bond markets, whereas within the money markets context, there is evidence of the flight‐to‐quality phenomenon. [ABSTRACT FROM AUTHOR]

The output gap, a production-based macroeconomic variable, is a strong predictor of U.S. stock returns. It is a prime business cycle indicator that does not include the level of market prices, thus removing any suspicion that returns are forecastable due to a "fad" in prices being washed away. The output gap forecasts returns both in-sample and out-of-sample, and it is robust to a host of checks. We show that the output gap also has predictive power for excess stock returns in other G7 countries and U.S. excess bond returns. [ABSTRACT FROM AUTHOR]

We quantify the importance of heterogeneity for monetary policy using a new heterogeneous-agent VAR (HAVAR) model that integrates national monetary/financial markets with regional housing markets via the mortgage rate. Although the HAVAR model has linear regional VARs, its aggregate impulse responses exhibit two nonlinearities: (1) time variation, stemming from aggregation over heterogeneous regions, and (2) state dependence on initial economic conditions in regions. Thus, monetary policy has "long and variable lags" because monetary transmission depends on the extent and nature of regional heterogeneity, which both vary over time. The model is estimated with data for U.S. regions from 1986 to 1996 and simulated to show how coastal housing booms might influence the efficacy of monetary policy. [ABSTRACT FROM AUTHOR]

This article argues that international financial markets could take declining net U.S. Treasury debt in stride under normal circumstances. First, declining net U.S. government debt does not force U.S. Treasuries to be retired. Instead, Asia-Pacific governments have established or sustained government securities markets despite fiscal surpluses. Second, developments in the U.S. dollar money market show that fixed income markets can generate their own private benchmarks. Finally, the world's central banks are well along in shifting their portfolios away from U.S. Treasury to other instruments. Questions remain about market functioning under stress without the typhoon harbor that Treasury securities have provided. [ABSTRACT FROM AUTHOR]

This paper employs a multivariate constant conditional correlation (CCC) GARCH model and the VAR-AGARCH model to examine whether the U.S. equity and money market have a volatility spillover effect on the returns of the most important agricultural export products of Latin America over the turbulent 2005–2016 period. These results indicate the strengthening of crossmarket linkages between U.S. equity and money market and agricultural raw material commodities (notably sugar and soy) during the period of an upward trend and financial turmoil. [ABSTRACT FROM AUTHOR]

The article discusses the informational content and the timeliness of accounting earnings in Australia, France, the Netherlands, and Great Britain with the U.S. as a benchmark. Differences in capital markets, accounting standards, disclosure practices, and corporate governance are looked at to determine if they create differences in the usefulness of accounting earnings. Annual accounting earnings in Australia, France, the Netherlands, and Great Britain are more informative and timely than in the U.S.

The article refers to the M1 transaction aggregate--assets that do not earn interest, are associated with macroeconomic goal variables, and correspond to shifts in spending--which is used by the U.S. Federal Reserve to guide monetary policy and examines asset substitution behavior over time. Elasticities of asset substitution, portfolio redistribution, and interest rate movements are discussed relative to financial market changes in the 1980s such as redefinition of monetary aggregates, interest rate deregulation, and introduction of new liquid assets. Cost functions that estimate complementarities among inputs are explained. Money market accounts, interest-bearing checkable deposits, and the M1A aggregate, which eliminates portfolio redistribution, are mentioned.

The article presents comments on issues in economics related to monetary dynamics in the United States. The article also provides information on approaches towards the understanding of economic events and an estimation of money demands. One approach considered in the article aims at applying an appropriate definition of money, or other constructed measures. Another approach examines the specifications of short-run dynamic monetary adjustments, in terms of supple-versus demand-adjusting models. The article uses cointegration and error-correction modeling.

The article presents discussion on the implications of the monetary policy shift of the United States Federal Reserve (Fed) in the 1980s. The transition from the use of the federal funds rate to a nonborrowed reserve instrument for monetary control is described and questions are raised regarding the extent to which the operating procedure has modified the Fed's fundamental position of money market control. A vector autoregressive statistical analysis of monetary policy goals and mechanisms is provided.

The article focuses on economist Robert Barro's investigations into the relative effects of "unanticipated" versus "anticipated" money growth on unemployment and real output. The author states that Barro's studies test the restriction of observed money growth in terms of anticipated and unanticipated components. The author suggests that strictly unanticipated money growth is important for the determination of aggregate real activity. The article also discusses financial market yields and provides several equations to illustrate the study.

The article focuses on the role of the money stock in the conduct of Federal Reserve monetary policy in the United States. The author states that there exists confusion in the analytical approach to Federal Reserve policy. The article discusses what the author believes are the three key issues of confusion including an inadequate analysis of the operating procedures the Federal Reserve uses to implement its policy from one short-run period to the next. The author explains that pragmatic monetarists encourage the Federal Reserve to achieve a moving average level of the money stock which tracks a predetermined target path accurately.

The article focuses on observed short-term market interest rate shifts in magnitude and seasonal patterning near 1970 in the U.S. Discussion is raised questioning whether or not the origins of the seasonality of the money market are due to the official transition of the Federal Reserve strategy from money market to money aggregate policies. It is suggested that inadequate adjustment of seasonality and growth rate measures along with short-term Fed reactions to the measures brought about the phenomena.

The article focuses on the U.S. Federal Reserve monetary policies before and after 1970, citing shifts of emphasis between interest rates and monetary aggregates as targets of control. A theoretical money-market model is designed to accommodate both systems and additional restrictions are offered to specifically reform the model, implying a mutually exclusive attention to one of the two policies. Discussion is given highlighting specification problems and model design for the system. This model is then applied to empirical data taken from the U.S. economy to test the consistency of the Federal Reserve's policy shifts.

The article presents an empirical test of the "monetary approach" of the economic balance-of-payments theory, as developed by Harry G. Johnson and Robert A. Mundell, applied to the economic history of the United States between 1951-1973. An overview of the model is presented, highlighting the underlying assumptions of arbitrage price equations and stable demand for money functions. Implications of the research on international financial relations and U.S. policy are also discussed, concluding that global central bank asset changes greatly affect the balance of payments.

The article reports on the financial market legislation of the U.S. with particular focus to the late 1930s. Changes in the financial markets of the U.S. have resulted in a bringing together of borrowers and lenders where money and capital markets are integrated efficiently. Bank regulators as well as regulatory agencies have lagged behind what has been termed a financial revolution with legal constraints remaining true to New Deal legislation rather than changing to meet the needs of banking in the 1970s.

The article discusses U.S. House Concurrent Resolution 133 and the role that the economist Karl Brunner played in its construction. Brunner's objective was that the Federal Reserve should consider implementing policies that were geared towards long run economic planning as well as a monetary base and money supply method for setting targets. One point of contention with the bill was the provision for advance-notice. Brunner's part in the passing of the bill involved convincing various U.S. Senators and Congressmen that money growth was linked to inflation and recession.

This paper reviews the evidence on takeover waves of the 1960s and 1980s, and discusses the implications of this evidence for corporate strategy, agency theory, capital market efficiency, and antitrust policy. We conclude that antitrust policy played an important role in the two takeover waves, and that the wave of the '60s presents a problem for efficient capital markets. [ABSTRACT FROM AUTHOR]

This paper studies the high frequency reaction of the DEM/USD exchange rate to publicly announced macroeconomic information emanating from Germany and the U.S. By using data sampled at a five-minute frequency, we are able to identify significant impacts of most announcements on the exchange rate change in the 15 minutes post-announcement, although the significance of these effects decreases rapidly as the interval over which the post-announcement change in exchange rates is increased. The direction of the exchange rate response conforms, in general, with a reaction function interpretation whereby reactions to macroeconomic news are driven by the likely operations of monetary authorities in domestic money markets. Further, we detect influences of German monetary policy decisions on the reaction of the exchange rate, and also differences between U.S. and German announcements in the exchange rate reaction time pattern. [ABSTRACT FROM AUTHOR]

This paper argues that an aggregate preferred habitat for investors exists on (or about) the last day of the calendar month, due to standardizations in the nation's payments system resulting in a concentrated flow of funds on this date. Thus, equilibrium yield discounts are predicted for securities maturing on such dates. Empirical tests on monthly and daily Treasury bill data support the principal hypothesis, as well as several ancillary hypotheses. The results have implications for Treasury debt management, for the short-term cash and debt management practices of businesses and banks, and for the empirical estimation of daily, weekly, or monthly return premiums on risky securities. [ABSTRACT FROM AUTHOR]

Empirical studies and much marketplace opinion have it that the spread between private money market rates and the U.S. Treasury bill rate of comparable maturity is due to differential default risk, liquidity risk, and relative supplies. This paper presents an argument and empirical evidence that the bulk of the systematic and medium-term differential between privates rates---in this case, domestic CDs, commercial paper, bankers' acceptances, and Eurodollar CDs---and the T-bill rate is due to the exemption of interest on Treasury securities from state and local taxation. In the case of Eurodollar CDs, the additional and major systematic factor explaining the spread (visa vis T-bills) is the exemption of Eurodollar CDs from the Federal Reserve's "tax" via reserve requirements. An empirical section confirms the role of standard default risk, liquidity risk, and market "absorption" variables in determining short-term deviations from tax-adjusted parity. The tax-adjusted parity condition, however, remains the major systematic and medium-term determinant---certainly more important than has been suggested previously in the literature. [ABSTRACT FROM AUTHOR]

The article presents an exploration into the prevalence of usury laws and effects on housing starts within the 1970s. Credit crunch periods are identified and legislation resulting from market events are discussed. A review of previous research conducted in the 1960s is given and extensions are offered using the same methodology with updated data focusing on mortgage interest rates. Comments are also given analyzing the results, describing the slow increase of correlation to associations of credit restrictions and usury legislation enactment.

The article focuses on the capital market uncertainty and the least-cost offering method of public utility debt in the U.S. The choice of offering method, competitive bidding or negotiated offering, for the issuance of new securities by public utilities is subject to approval by its regulators. The Federal Energy Regulatory Commission requires competitive bidding on all new securities issued by electric utilities. Regulators believe that competitive bidding will lead to lower overall interest costs. The article provides additional evidence on the importance of market uncertainty in the method of offering controversy using a sample from a more recent time period that includes a more volatile interest rate environment than in previous studies.

I use weekly Treasury-bill rates with maturities of one to twenty-six weeks to examine the information in forward rates during the 1970's and 1980's. Forward rates contain better information about future changes in spot rates than the information captured by auto regressive and vector-autoregressive models. Forward rates also have considerable predictive power, which increased after October 1979 and remained strong after October 1982. The results show no necessary connection between interest rate predictability and the degree to which the Fed adheres to interest rate targeting. [ABSTRACT FROM AUTHOR]

Money market funds have grown dramatically, increasing from $4.6 billion in January 1978 to over $184 billion in December 1981. Investors are attracted to money market funds (MMFs) by their safety of principal, high yields, liquidity, and limited check-writing privileges. The Board of Governors of the Federal Reserve System at one time requested the authority to extend reserve requirements to checkable MMFs to avoid further erosion of monetary control; the argument for reserve requirements is based on the potential use of checkable MMFs as transactions balances. As suggested by Goodfriend, et al., and Hester, the movement of funds from reservable deposits in depository institutions to MMFs to be used as transactions balances outside the reserve requirement system further loosens the link between reserves and money. This note discusses the effect of the substitution of MMF deposits for transaction balances at depository institutions on monetary control and tests the hypothesis that MMF deposits are a substitute for money in traditional money demand models, and thus should be considered part of M1 and subject to the regulations imposed on other transactions accounts. [ABSTRACT FROM AUTHOR]

This paper provides an appropriate framework to evaluate the impact of the universal reserve requirements called for by the new DIDMC Act of 1980. We derived the optimal reserve ratios for a dual banking system under the objective of controlling the monetary aggregates and the level of output. Then optimal reserve requirements were calculated from illustrative money market and macroeconomic parameters since the usual comparative statics were not useful. The results, generally, suggested optimal reserve ratios which were significantly higher than the old dual or the new universal reserve regimes for all targets. However, the calculation of values for the loss functions under various reserve regimes suggests that attainment of r1*, r2*, and t* may not be imperative, since the discrepancy between losses for optimal and various nonoptimal reserve schemes were not large. A major result of this paper, observed for both monetary and real targets, was that the differences in the instability of the targets for the old dual reserve ratios and the Fed's new universal reserve scheme were small. This result clearly suggests that although the DIDMC Act may solve the Federal Reserve's membership problem, it will not significantly enhance the Fed's effectiveness in controlling monetary or real sector aggregates. [ABSTRACT FROM AUTHOR]

This paper differs from earlier studies in that it is based on an explicit theory of dealer costs. Second, the empirical work is based on a larger body of data than previously available and includes more of the relevant variables. In particular, the study recognizes that the competition variable (number of dealers) used in other studies may simply reflect total capital availability and specifies a competition variable that cannot be viewed as a proxy for the amount of capital committed to making markets in a stock. Third, the paper develops and tests a model of the determinants of the number of dealers in a stock and includes a number of variables not considered by Tinic and West. The primary data base is closing bid and ask prices for each stock listed on the NASDAQ system in six days in July 1973 and volume of trading of each dealer in each stock. Additional data for weeks prior to that time were also analyzed. The data are described in greater detail in the Appendix. Since the NASDAQ market is quite new, the next section of the paper describes that market and presents characteristics of stocks and dealers in the market. A theory of the cost of dealer services is summarized in Section III and an equation for determinants of bid-ask spreads is specified. The empirical evidence on the determinants of spreads is in Section IV. An equation for the equilibrium number of dealers is developed in Section V and empirical estimates are presented. The conclusions are in Section VI. [ABSTRACT FROM AUTHOR]

The article focuses on the roles that three major forces play in the stock market's actions from the 1950s through 1963. It states that institutional buyers, large individual investors, and small individual investors have a significant influence on the stock market, but that the market decline during the first half of 1962 could be attributed primarily to the large individual investor. It comments on odd lot purchasing by small investors and mentions that statistical evidence supports the suspicion that small individual buyers have been a significant force in pushing the stock market high in relation to yields. It states that information from the U.S. Securities & Exchange Commission suggests that institutional buyers play a greater role than individual investors.

The article examines the effects of development of the Eurodollar market on foreign commercial banks in Europe. The article investigates how increases in the net size of the Eurodollar market might affect the overall United States current account or long-term capital accounts. One of the ways is that an increase in United States exports may arise from a net increase in the availability of dollar credits to foreign importers. Another way is an increase in U.S. exports may take place as a consequence of a redistribution of international liquidity.

In sum, the role of the United States as the world's banker has tended to reduce the recorded U.S. trade surplus. First, income from foreign investments induces a high rate of consumption, including consumption of foreign goods. Second, the gains from the production of international money (i.e., production of dollars held by foreigners) similarly tends to increase consumption of goods, some of which will be imported. To the extent the United States continues its dual role of net asset holder and of producer of money, we should expect less of an improvement in the current account surplus. To the extent either of these roles is curtailed, we should expect a long-term improvement of the current account. [ABSTRACT FROM AUTHOR]

The volume of literature on the credit-creating powers of the Euro-dollar market, although small, is growing. This paper contends that the stock of net Euro-dollar deposits (E[sub n]) can be expressed as the product of a Euro-dollar base (B) and a Euro-dollar multiplier (k). As in domestic models, the terms of the multiplier reflect asset choices of the sectors reflected by them. A parallel between the flow of funds within the Euro-dollar market and most domestic banking systems exists. Except that no single institution serves as a Euro-dollar central bank, the two systems are highly comparable. [ABSTRACT FROM AUTHOR]

The article examines the Proviso Clause of the U.S. Federal Open Market Committee, which calls for open market operations consistent with both stable money market conditions and current projections for bank credit. The author discusses the origins and use of the clause, and examines how effective it has been in practice. A model is developed to test the relationship between changing money market conditions and the growth of bank credit. Regression analysis performed on bank credit and money market data for the period January, 1966 through August, 1968 indicates changes in the money market have no consistent, short-term relationship with bank credit.

The article presents the author's observations gleaned as a bank supervisor. It has been my observation that banking structure and competition need to be studied more closely in terms of effective markets. The role of depositors, borrowers, and stockholders are considered. The public concern over efficient payment systems is discussed. The effects of economic development on bank management is looked at. Several papers presented at the May 1965 American Finance Association meeting are discussed, including those by George Benston, Ted Flechsig, and Donald Jacobs.

Comments are presented on the article "The Changing Structure of the Money Market," by Robert Stone, published within the issue. Steps taken by the U.S. Federal Reserve to meet the needs of international rate structure are compared to policy steps taken by the Treasury. The author criticizes Stone's views on banks bidding above the discount rate for Federal funds. It is suggested that the impact on economic structure of dealer repurchase agreements, Eurodollar time deposits, and quasi-posted rate markets be examined.

The article comments on the papers "The Changing Role of U.S. Banks in International Financing," by George H. Chittenden, "The International Money Market: Structure, Scope and Instruments," by Fred H. Klopstock, and "The Integration of European Capital Markets," by Oscar L. Altman, all published within the issue. The author looks at changes occurring in European capital markets, international money markets, and commercial bank lending. The movement toward better organized markets for long-term capital in Western Europe is discussed.

Comments are presented on the article "The Changing Structure of the Money Market," by Robert Stone, published within the issue. The author bases his discussion on flow-of-funds data from the U.S. Federal Reserve which examines three expansion periods in business activity since the Federal Reserve Treasury Accord. A table is presented which details changes made to the structure of financial assets acquired by corporate nonfinancial business from 1954 through 1964. Stone's discussion on negotiable certificates of deposit as technical innovations is examined.

The article looks at the changing structure of the U.S. money market. Major factors which have limited the amplitude of short run fluctuations in money market rates are identified and discussed, including the stability of the economic expansion and the growth of credit demands and persisting large flows of savings. The response of policy makers to the problem of short-term capital flows in a context of interdependent national money markets is examined. Broad patters of rate stability from 1957 through 1964 are discussed. The author also looks at the effect which concerns over the balance of payments has had on policy makers.

The article outlines the author's views on mortgage market developments for 1961 in the United States. It is suggested that the supply of investment funds seeking outlets in mortgage markets will exceed the demand in 1961. The article asserts that as the flow of saving expands, the downward pressure on mortgage interest will continue and the quality of credit will decline as reflected in contract terms and acceptability of borrowers. The article also predicts that the actual net flow of funds into mortgage markets will show little change from 1960 and may well decline.

The article provides an outlook for the U.S. capital markets as well as monetary policy. It is reported that the credit markets in 1960 were shaped by several strategic developments. One of the developments was shortly after the turn of the year, business expectations began to weaken and inflation psychology began to subside. During the first half of 1960, industrial activity leveled off following the immediate poststrike bulge, and sagged thereafter. Another development was that the U.S. Federal Reserve began to ease credit and carried out this policy throughout 1960 through a broad program involving open-market purchases, lower discount rates, and reductions in reserve requirements. Several other strategic developments are also presented.

The article discusses the important contribution that non-financial institutions make to money markets. The article focuses on the short-term investment practices of non-financial corporations, and outlines any changes in these practices since 1939. The article explains that, because of the significant increase in money-market investment, these investments can have a real impact on the growth of various sectors. The article addresses the determinants of types of securities held by non-financial corporations and trends in corporate short-term investment practices. The author notes that corporate portfolio managers have significant cash for investment, and market growth is evident by the number of companies selling commercial paper directly and sales changes in commercial paper houses.

The article provides an outlook for the capital market and long-term funds in the U.S. for 1959. The article examines the decline in plant and equipment expenditures and provides a discussion on business cycles. The author states that recessions that are detected in economic forecasting should always be taken seriously. The author discusses the status of financial institutions and the sources and uses of funds in the capital market. A table is provided containing information on sources and uses of funds in the capital market.

The article provides an outlook for the money market in the U.S. for 1959. The article discusses the importance of the business picture for the money market and the characteristics of the money market including the shifting of participation by lenders and borrowers, the volatility of interest rates, and the evolutionary changes of instruments. The author examines information on the volatility of interest rates and discusses federal funds. The article also takes a look at issues related to the provision of bank loans to government security dealers.