Creator: Green, Edward J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 501 Abstract:
I consider two theories of the determination of political institutions. One of these theories stresses effects of changes in the balance of military power between the ruler and subjects on the distribution of property rights which the political system enforces. The other theory emphasizes the effect of changing informational constraints which require institutional changes to be made in order to maintain efficiency. I examine how each of these theories would apply to explaining the development of parliamentary government in thirteenth-century England. My general conclusion is that both theories are required to understand fully the process by which liberal political institutions emerge.
Keyword: Great Britain, England, History, and Government Subject (JEL): H11 - Structure and scope of government - Structure, scope, and performance of government and N43 - Government, war, law, and regulation - Europe : Pre-1913
Creator: Boyd, John H. and Graham, Stanley L. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 398 Abstract:
This study estimates the effects of allowing bank holding companies (BHCs) to enter several lines of financial business not now permitted. A simulation technique is used to estimate the risk and return of hypothetical financial corporations after merger between a BHC and a large firm in each of these industries: securities, real estate, life insurance, property and casualty insurance, and insurance agencies. The study concludes that a merger between a BHC and a life insurance company may decrease the probability of bankruptcy for the merged firm relative to the BHC alone. This result does not hold true, however, for BHC mergers with firms in the other industries. In particular, BHC mergers with securities or real estate firms are found to increase the probability of bankruptcy.
Keyword: Bank holding company, Securities, Insurance, Risk, Merger, Bank holding companies, Bankruptcy, and Real estate Subject (JEL): G28 - Financial institutions and services - Government policy and regulation, G21 - Financial institutions and services - Banks ; Other depository institutions ; Micro finance institutions ; Mortgages, and G32 - Corporate finance and governance - Financing policy ; Financial risk and risk management ; Capital and ownership structure
Creator: Chari, V. V. and Kehoe, Patrick J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 377 Abstract:
We propose a definition of time consistent policy for infinite horizon economies with competitive private agents. Allocations and policies are defined as functions of the history of past policies. A sustainable equilibrium is a sequence of history-contingent policies and allocations that satisfy certain sequential rationality conditions for the government and for private agent3. We provide a complete characterization of the sustainable equilibrium outcomes for a variant of Fischer's (1980) model of capital taxation. We also relate our work to recent developments in the theory of repeated games.
Keyword: Game theory Subject (JEL): D58 - General equilibrium and disequilibrium - Computable and other applied general equilibrium models and E61 - Macroeconomic policy, macroeconomic aspects of public finance, and general outlook - Policy objectives ; Policy designs and consistency ; Policy coordination
Creator: Backus, David. and Kehoe, Patrick J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 348 Abstract:
We derive the empirical implications of a popular class of international macroeconomic models. The real economy is a stochastic exchange model with complete markets. A standard result is that cross-country risk sharing implies perfect correlation between consumption paths across countries. With mild restrictions on the endowment process ii also implies a positive correlation between net exports and output in every country. We introduce money using cash-in-advance constraints and show that the implications for real variables carry over into the monetary economy. These dichotomy and neutrality propositions generalize those in the literature to stochastic environments with heterogeneous agents, and do not require the cash-in-advance constraint to bind in every state. They imply that any correlation between the nominal exchange rate and the balance of trade can be made consistent with the theory.
Keyword: Exchange rates, Monetary policy, Risk-sharing, Cash-in-advance, and Government finance Subject (JEL): D46 - Market structure and pricing - Value theory, E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles, and F30 - International finance - General
Creator: Christiano, Lawrence J., Eichenbaum, Martin S., and Marshall, David A. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 335 Abstract:
This paper investigates whether there are simple versions of the permanent income hypothesis which are consistent with the aggregate U.S. consumption and output data. Our analysis is conducted within the confines of a simple dynamic general equilibrium model of aggregate real output, investment, hours of work and consumption. We study the quantitative importance of two perturbations to the version of our model which predicts that observed consumption follows a random walk: (i) changing the production technology specification which rationalizes the random walk result, and (ii) replacing the assumption that agents' decision intervals coincide with the data sampling interval with the assumption that agents make decisions on a continuous time basis. We find substantially less evidence against the continuous time models than against their discrete time counterparts. In fact neither of the two continuous time models can be rejected at conventional significance levels. The continuous time models outperform their discrete time counterparts primarily because they explicitly account for the fact that the data used to test the models are time averaged measures of the underlying unobserved point-in-time variables. The net result is that they are better able to accommodate the degree of serial correlation present in the first difference of observed per capita U.S. consumption.
Keyword: Income and Consumption Subject (JEL): E21 - Macroeconomics : Consumption, saving, production, employment, and investment - Consumption ; Saving ; Wealth and C52 - Econometric modeling - Model evaluation and selection
Creator: Sargent, Thomas J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 64 Keyword: Macroeconomics Subject (JEL): E00 - Macroeconomics and monetary economics - General - General
Creator: Smith, Bruce D., d. 2002. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 221 Abstract:
This paper considers a view commonly associated with the "quantity theory of money": that banks should face 100 percent reserve requirements. It argues first that the objectives of the quantity theorists' proposals were more than merely price level stability, and that in fact, price level stability was at most a secondary objective of their proposals. Second, it argues that these theorists had a world with distortions in mind with respect to their proposals. These are present in a special setting examined that (a) supports the imposition of 100 percent reserve requirements (on the basis of an unconstrained Pareto criterion), and (b) supports the view that these restrictions stabilize the price level and make its movements more "predictable."
Keyword: Loans, Quantity-theory, Quantity theory, Price level stability, Banks, and Lending Subject (JEL): E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation and G28 - Financial institutions and services - Government policy and regulation
Creator: Boyd, John H. and Gertler, Mark. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.) Number: 531 Abstract:
This paper reexamines the conventional wisdom that commercial banking is an industry in severe decline. We find that a careful reading of the evidence does not justify this conclusion. It is true that on-balance sheet assets held by commercial banks have declined as a share of total intermediary assets. But this measure overstates any drop in banking, for three reasons. First, it ignores the rapid growth in commercial banks' off-balance sheet activities. Second, it fails to take account of the substantial growth in off-shore C&I lending by foreign banks. Third, it ignores the fact that over the last several decades financial intermediation has grown rapidly relative to the rest of the economy. We find that after adjusting the measure of bank assets to account for these considerations there is no clear evidence of secular decline. To corroborate these findings, we also construct an alternative measure of the importance of banking, using data from the National Income Accounts. Again, we find no clear evidence of a sustained declined. At most the industry may have suffered a slight loss of market share over the last decade. But as we discuss, this loss may reflect a transitory response to a series of adverse shocks and the phasing in of new regulatory requirements, rather than the beginning of a permanent decline.
Keyword: Commercial banks, Banking, Intermediation, Bank assets, and Lending Subject (JEL): G21 - Financial institutions and services - Banks ; Other depository institutions ; Micro finance institutions ; Mortgages