Showing papers by "Federal Reserve System published in 1982"

Time-Separable Preference and Intertemporal-Substitution Models of Business Cycles

Abstract: Time-separability of utility means that past work and consumption do not influence current and future tastes. This form of preferences does not restrict the size of intertemporal-substitution effects--notably, we can still have a strong response of labor supply to temporary changes in wages. However, there are important constraints on the relative responses of leisure and consumption to changes in relative-price and in permanent income. When the usual aggregation is permissible, time-separability has some important implications for equilibrium theories of the business cycle. Neglecting investment, we, find that changes in perceptions about the future -- which night appear currently as income effects -- have no influence on current equilibrium output. With investment included, no combination of income effects and shifts to the perceived profitability of investment will yield positive co-movements of output, employment, investment and consumption. Therefore, misperceived monetary disturbances or other sources of changed beliefs about the future cannot be used to generate empirically recognizable business cycles. Some richer specifications of intertemporal production opportunities may eventually yield more satisfactory answers. Because of the positive correlation between cyclical movements of consumption and work, equilibrium theories with time-separable preferences inevitably predict a procyclical behavior for the real wage rate, arising from shifts to labor's marginal product. Empirically, we regard the cyclical behavior of real wages as an open question. Aside from analyzing autonomous real shocks to productivity, we suggest that such shifts may occur as firms vary their capital utilization in response to intertemporal relative prices. However, we still lack some parts of a complete theory.

Pricing, operating efficiency, and profitability among large commercial banks

Abstract: This study uses statistical cost accounting techniques to examine the relationship between bank profitability and two dimensions of operating performance — pricing and operating efficiency. The traditional statistical cost accounting model, which relates a firm's income to its asset and liability mix, is expanded to account for differences in market structure, regional demand and supply conditions, and macroeconomics factors. The study focuses on large (above $500 million in domestic deposits) banks, comparing a sample of relatively profitable banks against a matched group of much less profitable banks over the period 1970–1977. After allowing for regional supply and demand factors, the high and low-profit banks are estimated to earn equal market rates of return on individual assets and liabilities. There is virtually no evidence that differential prices are an important discriminator between the two bank groups. Some evidence is found that the high-earnings banks experience lower operating costs on some liabilities, but the opposite is true with respect to selected asset items. After taxes are taken into account, however, any such cost differentials virtually disappear. Overall, there is no compelling evidence that high-profit banks are characterized by greater operating efficiency than their low-earnings counterparts. This finding is consistent with the view that over time, and especially among relatively large banks, information flows and competitive pressures act to reduce operating efficiency differences that may appear in the short run.

The Real Bills Doctrine

Abstract: With recession lingering and interest rates remaining high, one hears increasingly that the Fed should abandon its money growth targets and move to a policy of lowering interest rates to full employment levels.

The Behavior of Money, Credit, and Prices in a Real Business Cycle

Abstract: This paper analyzes the interaction of money and the price level with a business cycle that is fully real in origin, adopting a view which differs sharply from traditional theories that assign a significant causal influence to monetary movements. The theoretical analysis focuses on a banking system that produces transaction. services on demand and thus reflects market activity. Under one regime of bank regulation and fiat money supply by the monetary authority, the real business cycle theory predicts that (i)movements in external monetary measures should be uncorrelated with real activity and(ii) movements in internal monetary measures should be positively correlated with real activity. Preliminary empirical analysis provides general support for this focus on the banking sector since much of the correlation between monetary measures and real activity is apparently with inside money.

The pricing of the prime rate

Abstract: The prime business loan rate has become widely viewed as one of the chief barometers of credit market conditions, yet we know little about how this rate is determined. The objective of this paper is to attempt to further our understanding of the prime rate through an analysis of recent prime rate movements in order to determine if the prime reacts immediately to changes in money market conditions, as would be the case of a competitively-determined price, or whether the prime demonstrates properties of an oligopolistic price. The empirical findings contained herein appear to support the hypothesis that the prime rate is an average of a bank's cost of its currently- and previously-issued, but still outstanding, managed liabilities. This type of pricing minimizes the interest rate risk in the bank's balance sheet and facilities coordination and discipline in an oligopolistic market. Furthermore, it also appears that banks may be using the prime rate in conjunction with below prime lending to price discriminate between customers on the basis of whether these customers have alternative channels of short-term financing.

The October 1979 Regime of Monetary Control and the Behavior of the Money Supply in 1980

Abstract: In October 1979, the Federal Reserve System instituted a regime of monetary control characterized by lagged-reserve accounting and a nonborrowed-reserves operating target.

Of Hume, Thornton, the Quantity Theory, and the Phillips Curve

Abstract: Many economists would agree no doubt that the strict classical quantity theory of money is logically incompatible with the concept of a stable, long-run Philips curve tradeoff between output and inflation.

Adjustment Costs, Durables, and Aggregate Consumption

Abstract: Previous tests of the permanent income hypothesis (PIH) have focused on either nondurables or durables expenditures in isolation. This paper studies consumer purchases of nondurables and durables as the outcome of a single optimization problem.It is shown that the presence of adjustment costs of changing durables stocks may substantially affect the time series properties of both components of expenditure under the PIH.However, econometric tests based on this model do not contradict earlier rejections of the PIH in aggregate quarterly data.

The relative size of banks and industrial firms in the U.S. and other countries A Note

Abstract: Some observers of U.S. banking argue that because of the fragmented banking structure, U.S. banks will not be large enough to (1) compete with their foreign counterparts, and (2) provide for the credit needs of large U.S. industrial corporations. The evidence does not support these arguments. Though U.S. banks are losing rank among the world's largest, they are still well represented. Only France had more banks among the 10 largest and only Japan had more among the 100 largest. Additionally, the data reveal that, in the U.S., large banks are small in relation to large industrial corporations in comparison with other countries. However, this is because the U.S. industrial corporations are so large not because the banks are small. Finally, data on commercial paper, bank loans to foreigners, and bank loans to business do not suggest there is a problem in meeting the short-term credit needs of business.

The existence of moments of ridge-like k-class and partially restricted reduced form estimators

Abstract: I n Sway and Mehta (1980) it was shown that when the number of included endogenous variables i n a structural equation i s two then a ridge-like k-class estimator' with 02 k 2 1 possesses moments o f all order .in the normal case. I n this note we extend those results to the case where the equation contains more than two endogenoustract.

The competition for transaction accounts

Abstract: The 1980 enactment of legislation extending authority to offer interest-bearing checking instruments to all depository institutions has brought intensified competition for consumers' transaction balances.

The Professional Agricultural Economics Labor Market: Discussion

Abstract: This discussion reviews the job market facilities-national registry, AAEA Newsletter employment listings, and annual meeting employment service-provided by or in cooperation with the American Agricultural Economics Association. By being misinformed or unaware of some key aspects and procedures of these facilities, particularly of the national employment registry, some employers and AAEA members are either overlooking these services or not getting optimal results from their use. My comments and suggestions stem from observations as chairman of the AAEA' s Professional Registries and Employment Committee. The Registry for Agricultural Economists is a year-round employment service operated by the Illinois State Employment Service with the cooperation of AAEA. It was started in 1974 as an experimental computer-based employment service for professional workers, funded by a grant from the U.S. Department of Labor. ISES continued the service after the last extension of the grant expired in 1981. Only three such professional registries exist in the United States; the others, also operated by ISES, cover economists and pharmacists. The National Registry features a computer-based file of job applicants-agricultural economists interested in new positions or consulting assignments. Applicants fill out a registration form developed primarily by AAEA committees. Registry staff enter this information into a database residing in a computer operated by the New York State Department of Labor. The information for each applicant can be retrieved via terminal, formatted, and printed as a resum6 that can be supplied to prospective employers. To obtain the resumes of registrants that meet the requirements of a specific job opening, an employer fills out a job order form that parallels the contents of the applicant's form. Using an efficient search program (STAIRS), registry staff then perform an on-line search of the registrant file to find applicants that meet requirements of the position. Any absolute requirements plus the primary requirements of the position are first employed in the search. If this initial search yields more resumes than most employers would welcome receivingmore than 100 or so-then other qualifications or characteristics specified or implied on the job order are used to zero in on those applicants most likely to be of interest to the employer. (Thus it is essential that registrants have responded, and responded appropriately, to those questions that are used in searchesmore on this later.) The employer receives a computer-printed resume for each applicant identified by the final search. About 50 resumes are considered a desirable result. Some job orders, however, specify requirements that few applicants meet; for instance, consulting firms bidding on a foreign contract may require knowledge of a specific language or country. Thus in the year ended 30 June 1982, an average of 21 resumes were printed per job order received. In all, 3,363 resumes were printed in response to 157 job orders. Note that in the year-round service described above, applicants are not able to obtain information on job orders or openings. This restriction enables the registry to obtain from employers reliable information on placements that resulted from use of the service. The registry needs such data to demonstrate its effectiveness and thereby justify its funding by the ISES and the federal government.

Interest Rates and Federal Deficits

Abstract: The relationship of Federal deficits and market interest rates has been the central theme of much recent discussion of economic policy.