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Working Paper
Interest rate rules and nominal determinacy
Monetary economists have recently begun a serious study of money supply rules that allow the Fed to adjustably peg the nominal interest rate under rational expectations. These rules vary from procedures that produce stationary nominal magnitudes to those that generate nonstationarities in nominal variables. Our paper investigates the determinacy properties of three representative interest rate rules. ; We use Blanchard and Kahn's solution technique as a starting point. It doesn't directly apply, so we first modify their procedure. We then narrow the range of solutions by considering the ARMA ...
Working Paper
Inflation and financial market performance
Discussion Paper
Bank regulation and the efficiency of financial intermediation
Journal Article
Investigating the banking consolidation trend
This paper examines whether the U.S. banking industry's recent consolidation trend--toward fewer and bigger firms--is a natural result of market forces. The paper finds that it is not: The evidence does not support the popular claims that large banking firms are more efficient and less risky than smaller firms or the notion that the industry is consolidating in order to eliminate excess capacity. The paper suggests, instead, that public policies are encouraging banks to merge, although it acknowledges that other forces may be at work as well.
Working Paper
Moral hazard under commercial and universal banking
Many claims have been made about the potential benefits, and the potential costs, of adopting a system of universal banking in the United States. We evaluate these claims using a model where there is a moral hazard problem between banks and ?borrowers,? a moral hazard problem between banks and a deposit insurer, and a costly state verification problem. Under conditions we describe, allowing banks to take equity positions in firms strengthens their ability to extract surplus, and exacerbates problems of moral hazard. The incentives of universal banks to take equity positions will often be ...
Conference Paper
Inflation, financial markets and capital formation
Working Paper
Deposit insurance: a reconsideration
This paper undertakes a simple general equilibrium analysis of the consequences of deposit insurance programs, the way in which they are priced and the way in which they fund revenue shortfalls. We show that the central issue is how the government will make up any FDIC losses. Under one scheme for making up the losses, we show that FDIC policy is irrelevant: it does not matter what premium is charged, nor does it matter how big FDIC losses are. Under another scheme, all that matters is the magnitude of the losses. And there is no presumption that small losses are ?good.? We also show that ...
Working Paper
Inflation and financial market performance
An exploration of the cross-sectional relationship between inflation and an array of indicators of financial market conditions, using time-averaged data covering several decades and a large number of countries.