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Creator: Cole, Harold Linh, 1957- and Kehoe, Patrick J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 534 Palavra-chave: Loans and Debt Sujeito: F34 - International Lending and Debt Problems and E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination
Creator: Boyd, John H. and Gertler, Mark Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) 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.
Palavra-chave: Lending, Bank assets, Banking, Intermediation, and Commercial banks Sujeito: G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Creator: Braun, R. Anton and Christiano, Lawrence J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 529 Abstract:
The money demand literature presents much conflicting evidence on this question. For example, Lucas (1988) reports unrestricted money demand regressions which seem to imply that long-run money demand elasticities are highly unstable across subsamples. At the same time, he also presents evidence from money demand regressions with the income elasticity restricted to unity which seem to suggest stability. We conduct a formal analysis which weighs these apparently conflicting facts to determine which hypothesis is more plausible; the hypothesis that money demand is stable, or the hypothesis that money demand is unstable. We find that the stability hypothesis is the more plausible one. Thus, according to our data set, the answer to the question in the title is "yes".
Palavra-chave: M1, Money supply, Money demand, Regression analysis, and Money demand regressions Sujeito: E41 - Demand for Money and E51 - Money Supply; Credit; Money Multipliers
Creator: Braun, R. Anton and McGrattan, Ellen R. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 527 Palavra-chave: Homework, Employment, Women, Family labor supply, Men, Hours per worker , and Household production Sujeito: J22 - Time Allocation and Labor Supply and D13 - Household Production and Intrahousehold Allocation
Creator: Boyd, John H. and Smith, Bruce D. (Bruce David), 1954-2002 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 522 Abstract:
We consider a two country growth model with international capital markets. These markets fund capital investment in both countries, and operate subject to a costly state verification (CSV) problem. Investors in each country require some external finance, but also provide internal finance, which mitigates the CSV problem. When two identical (except for their initial capital stocks) economies are closed, they necessarily converge monotonically to the same steady state output level. Unrestricted international financial trade precludes otherwise identical economies from converging, and poor countries are necessarily net lenders to rich countries. Oscillation in real activity and international capital flows can occur.
Palavra-chave: CSV, Open economy, International lending, Costly state verification, Capital investment, Closed economy, Credit rationing, International capital markets, and Credit Sujeito: F34 - International Lending and Debt Problems and O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Creator: Chari, V. V., Christiano, Lawrence J., and Kehoe, Patrick J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 520 Palavra-chave: Business cycles, Policy analysis, Exogenous growth model, Monetary policy, Optimal taxation, Friedman rule, and Fiscal policy Sujeito: E52 - Monetary Policy and E32 - Business Fluctuations; Cycles
Creator: Atkeson, Andrew and Kehoe, Patrick J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 513 Abstract:
In this paper, we build a model of the transition following large-scale economic reforms that predicts both a substantial drop in output and a prolonged pause in physical investment as the initial phase of the optimal transition following the reform. We model reform as a change in policy which induces agents to close existing enterprises using old technologies of production and to open up new enterprises adopting new technologies of production. The central idea of our paper is that it is costly to close old enterprises and open new enterprises because, in doing so, information capital built up about old enterprises is lost and time must pass before information capital about new enterprises can be acquired. Thus, an acceleration of the pace of industry evolution leads in the short run to a net loss of information capital, a drop in productivity, a recession, and a fall in physical investment. We calibrate our model of industry evolution, information capital, and transition to match micro data on industry evolution in the United States and macro data from the United States, Japan, and the former communist countries of Europe. We find that the loss of information capital that accompanies a major acceleration in the pace of industry evolution in an economy leads initially to a decade of recession and a five year pause in physical investment before the benefits of reform are realized.
Palavra-chave: Information capital, Recession, Transition, Industrial evolution, Economic reform, Technological evolution, Policy change, and Technology change Sujeito: O25 - Industrial Policy and O33 - Technological Change: Choices and Consequences; Diffusion Processes
Creator: Boyd, John H. and Smith, Bruce D. (Bruce David), 1954-2002 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 512 Abstract:
We investigate ex-ante efficient contracts in an environment in which implementation is costless. In this environment, standard debt contracts will typically not be optimal. Optimal contracts may involve defaults, even in states in which the borrower is fully able to repay. We then examine the welfare costs of arbitrarily restricting the set of feasible contracts to standard debt contracts. When model parameters are calibrated to realistic values, the welfare loss from exogenously imposing this restriction is extremely small. Thus, if the implementation costs are actually nontrivial (as seems likely), standard debt contracts will be (very close to) optimal.
Palavra-chave: CSV, Optimal contract, CESV, Standard debt contract, Ex ante contract, Costly state verification, Loans, Financial contract, Bankruptcy, Costly ex-post state verification, Contracts, and Debt Sujeito: G10 - General Financial Markets: General (includes Measurement and Data) and D86 - Economics of Contract: Theory