The influence of housing and durables on personal saving
The rate of national saving declined sharply in the 1980s. Some of the explanations for this puzzling performance have considered the influence of capital gains, a reduction in the need for precautionary saving, a decline in the need for retirement saving, the effect of slower income growth, and a host of other factors. ; This article explores the relationship between personal saving and the treatment of owner-occupied housing and consumer durable goods in the national income and product accounts. It examhaes the potential consequences of understating the returns on owner-occupied houses and ...
The capitalization and portfolio risk of insurance companies
The strategies of financial intermediaries in the United States presumed a stability of interest rates that began to break down in the late 1960s. Not only did rising interest rates during the past two decades tend to depress the value of the assets of all intermediaries, they also fostered competition among intermediaries as all sought new opportunities for profit. In order to cope, many financial institutions assumed new bets by "reaching" for riskier assets offering higher yields or by operating with less capital per dollar of assets. To varying degrees, many insurance companies have ...
The roles of debt and equity in financing corporate investments
Profits and stock prices: the importance of being earnest
While the prospect for equity values naturally concerns traders and investors, it also is a concern for public policy. Because investors wealth depends on the value of corporate equity, the demand for consumption goods can vary with the price of stocks. The valuation of corporations productive assets on stock exchanges also influences businesses willingness and ability to undertake new investments. If the falling price of stocks should retard the pace of capital formation in the future, it also would retard the potential growth of output and living standards. ; This article examines the ...
Inflation, taxes, and interest rates
Risk and the capital of insurance companies
Insurance companies, like other financial institutions, have been evolving from specialized businesses to enterprises offering a variety of financial services. Rising interest rates impelled this evolution during much of the past three decades as most insurers tried to remain competitive. However, as insurers' profit margins subsided and they attracted new business, their assets generally grew more rapidly than their capital. To maintain the safety and soundness of insurance companies, regulators increasingly are adopting risk-based capital requirements instead of rules that limit insurers' ...
The practice of central banking in other industrialized countries
Central banks in larger industrialized countries increasingly favor market operations, the buying and selling of securities, over standing facilities, such as lending and deposit facilities, in conducting their monetary policies. In their market operations, foreign central banks most commonly trade securities issued or guaranteed by their governments and repurchase agreements that are backed by a variety of assets, including private securities and securities denominated in foreign currencies. Some also trade in securities that are issued by other governments or private securities that are ...
Economic rents, the demand for capital, and financial structure
The correspondence between the demand for capital and various measures of the return on assets, the cost of capital, and Tobin?s q often is tenuous (Abel and Blanchard 1986; Hayashi 1982), at times even perverse. Of a variety of possible explanations, this paper considers the consequences of allowing for declining returns to capital--a declining marginal efficiency of capital schedule (MEC). This modification not only relaxes the connection between the demand for capital and many of its traditional determinants, but it also may introduce a connection among the value of the firm, its financial ...
Tax reform and capital formation