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  • Q811kj71q?file=thumbnail
    Creator: Stolz, Richard W.
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 011
    Abstract:

    Although many studies have investigated the relationship between market structure and the prices of bank services, most have been concerned with metropolitan areas. These studies generally have used bank balance sheet and income statement ratios as bank conduct proxies. Moreover, prior studies have approximated local banking markets with county or SMSA boundaries.

    This study develops a methodology for delineating the geographic boundaries of local banking markets through the use of secondary economic and demographic data. This methodology is utilized to delineate rural banking markets in the states of Iowa, Minnesota, and Wisconsin. The relationship between those markets and rural bank conduct is investigated. Conduct is measured with explicit price and nonprice information generated by telephone survey.

    The market determination methodology is based on the assumption that people will bank where they live, work, or obtain goods and services. Using a classification system which categorizes communities according to variety and amount of retail business transactions, a gradient concept is developed which initially approximates market boundaries according to local minima in the gradient.

    This procedure, which determines where residents are likely to shop, is supplemented with commuting data based on minor civil divisions to determine where residents work. The resulting “areas of convenience” designate the locale where local customers will ordinarily select banking services.

    The natural banking markets determined for the entire state of Minnesota are compared with banking markets approximated by county or SMSA boundaries. The counties or SMSAs are allowed to underestimate or overestimate the natural market by as much as 30 percent of total deposits before being classified as unacceptable approximators. According to these criteria, 61 percent of the counties and SMSAs are found to be unacceptable approximators. When the criteria are tightened to permit only 10 percent underestimation or overestimation, 79 percent of the counties and SMSAs are rated unacceptable. This implies that researchers and policy makers should be cautious about approximating local banking markets with political boundaries. Additional methods for testing the procedure and making it operational are suggested.

    The methodology is used to delineate local banking markets in Iowa, Minnesota, and Wisconsin. Twenty-five rural markets are randomly selected from each state. A total of 333 banks from these markets forms the basis for the structure-conduct analysis. These banks are surveyed by telephone to determine explicit price and nonprice information.

    Three estimation models (linear, hyperbolic, and cubic) are developed to analyze the relationship between rural bank market structure and the survey variables. The basic linear model generally provides the best fit.

    Increases in concentration are significantly associated with increases in the rates rural banks charge on each type of loan included in the study. Moreover, increases in market share are significantly associated with increases in nonprice effort. Consequently, policy makers are confronted with selecting between: (1) higher prices and increased provision of ancillary banking services, or (2) lower prices and less service.

  • Fn106x994?file=thumbnail
    Creator: Anderson, Paul A.
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 019
    Abstract:

    This paper puts forward a method of policy simulation with an existing macroeconometric model under the maintained assumption that individuals form their expectations rationally. This new simulation technique grows out of Lucas’ criticism that standard econometric policy evaluation permits policy rules to change but doesn’t allow expectations mechanisms to respond as economic theory predicts they will. The technique is applied to versions of the St. Louis Federal Reserve model and the Federal Reserve-MIT-Penn (FMP) model to simulate the effects of different constant money growth policies. The results of these simulations indicate that the problem identified by Lucas may be of great quantitative importance in the econometric analysis of policy alternatives.

  • 3197xm13h?file=thumbnail
    Creator: Bryant, John B.
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 050
    Abstract:

    A simple model of the process of learning in a diverse economy is presented. This model produces a stylized business cycle with shocks which precipitate the learning process. All agents have the same information, which implies that this business cycle cannot be reduced by improved information flow, counter to many models of output and employment fluctuation.

  • 8k71nh159?file=thumbnail
    Creator: Sargent, Thomas J. and Sims, Christopher A.
    Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 055
    Description:

    Paper prepared for seminar on New Methods in Business Cycle Research, Federal Reserve Bank of Minneapolis, November 13-14, 1975.

  • Zs25x8453?file=thumbnail
    Creator: Anderson, Paul A.
    Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 082
    Abstract:

    This paper puts forward a method of policy simulation with an existing macroeconometric model under the maintained assumption that individuals form their expectations rationally. This new simulation technique grows out of Lucas' criticism that standard econometric policy evaluation permits policy rules to change but doesn't allow expectations mechanisms to respond as economic theory predicts they will. This technique is applied to versions of the St. Louis Federal Reserve model and the FRB-MIT-Penn model to simulate the effects of different constant money growth policies. I shall briefly summarize the current practice of policy evaluation and the Lucas critique in the first section. The second section includes an explanation of the method I propose. The third section includes the two illustrative applications. In the conclusion, I cannot resist the temptation to offer some opinions about the use and usefulness of econometric models.

    Description:

    Cover note: "To be presented at the summer meetings of the Econometric Society in Ottawa on June 22, 1977."

    Keyword: Rational expectations theory, Policy, and Macroeconometric models
    Subject (JEL): E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
  • Rn301137d?file=thumbnail
    Creator: Anderson, Paul A.
    Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 082
    Abstract:

    This paper puts forward a method of policy simulation with an existing macroeconometric model under the maintained assumption that individuals form their expectations rationally. This new simulation technique grows out of Lucas' criticism that standard econometric policy evaluation permits policy rules to change but doesn't allow expectations mechanisms to respond as economic theory predicts they will. This technique is applied to versions of the St. Louis Federal Reserve model and the FRB-MIT-Penn model to simulate the effects of different constant money growth policies. I shall briefly summarize the current practice of policy evaluation and the Lucas critique in the first section. The second section includes an explanation of the method I propose. The third section includes the two illustrative applications. In the conclusion, I cannot resist the temptation to offer some opinions about the use and usefulness of econometric models.

    Keyword: Rational expectations theory, Policy, and Macroeconometric models
    Subject (JEL): E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
  • Hq37vn705?file=thumbnail
    Creator: Litterman, Robert B. and Weiss, Laurence M.
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 089
    Abstract:

    This paper reexamines U.S. postwar data to investigate if the observed comovements between money, interest rates, inflation, and output are compatible with the money to real interest to output links suggested by existing monetary theories of the business cycle, which include both Keynesian and equilibrium models. We find these theories are incompatible with the data, and in light of these results, we propose an alternative structural model which can account for the major dynamic interactions among the variables. This model has two central features: (i) output is unaffected by the money supply; and (ii) the money supply process is influenced by policies designed to achieve short-run price stability.

  • Rx913p97f?file=thumbnail
    Creator: Stutzer, Michael J.
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 090
    Abstract:

    Silberberg [6] and Pauwels [2] have produced and clarified seminal results in the comparative statics of single-agent classical optimization problems. This paper extends Pauwels’ method to derive analogous results for stable Nath equilibria in a subclass of the widely used class of concave orthogonal games defined by Rosen [3]. Application of these results to cost curve shifts in the asymmetric Cournot oligopoly immediately uncovers apparently new comparative statics results.

  • 5138jd856?file=thumbnail
    Creator: Bryant, John B.
    Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 099
    Abstract:

    This paper presents a monetarist model of the business cycle with price-setting firms. The model is estimated, and the point estimates used in simulations to illustrate the properties of the model. The real goods market is found to be stable, although subject to sharp changes in output. This model is consistent with rational expectations. Nevertheless, monetary policy can have a lasting impact, and the simulations show this to be the case. Fiscal policy too is found to influence the business cycle, but its short-run effects are substantially smaller than its impact effects. The possibility of an activist government policy in this model does not imply the efficiency of an activist policy.

    Keyword: Real goods market, Inventory cycle, Rational expectations, and Disequilibrium
    Subject (JEL): G31 - Capital Budgeting; Fixed Investment and Inventory Studies; Capacity and E30 - Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data)
  • 8w32r572q?file=thumbnail
    Creator: Prescott, Edward C.
    Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department)
    Number: 102
    Abstract:

    Recent developments in business cycle theory are reviewed. The principal finding is that the growth model, which was developed to account for the secular patterns in important economic aggregates, displays the business cycle phenomena once it incorporates the observed randomness in the rate of technological advance. The amplitudes and serial correlation properties of fluctuations in output and employment that the growth model predicts match those historically experienced in the United States. Further, the model continues to display the growth facts it was developed to explain.