Federal Reserve System

About: Federal Reserve System is a other organization based out in Washington D.C., District of Columbia, United States. It is known for research contribution in the topics: Monetary policy & Inflation. The organization has 2373 authors who have published 10301 publications receiving 511979 citations.

The Noisy Monopolist: Imperfect Information, Price Dispersion and Price Discrimination

Abstract: Although economists often assume that commodities form homogeneous categories with a single price, there are in fact heterogeneities within commodity groupings. Many markets for apparently identical commodities are characterized by dispersion in price and differences in durability and other quality measures. The information a buyer requires in order to obtain the lowest price or " best buy must be produced at a cost. For example, various activities for producing this information are reading magazines such as Consumer Reports, consultations with friends and sales personnel, scanning newspaper advertisements and directly sampling store prices. Consumers' search techniques and the efficiency with which they gather information varies. This heterogeneity leads to differences in optimal information-gathering strategies. Those consumers who are more efficient information-gatherers and searchers obtain better buys on average. Although there are clearly private returns to information-gathering, dispersion appears socially wasteful. If there were no dispersion, consumers would not need to engage in this costly learning activity. It is only the failure of the market to price correctly that allows the private returns to search. This waste leads to the suspicion that a monopolistically controlled market will be characterized by a smaller degree of dispersion than a more competitive one. Stigler [19, p. 223] argues that " From the manufacturer's viewpoint, uncertainty concerning his price is clearly disadvantageous, the cost of search is a cost of purchase, and consumption will be smaller the greater the dispersion of prices and the greater the optimum amount of search ". On the other hand, when consumers differ in their information-generating efficiencies and costs, dispersion serves as a device for splitting up the market to permit price discrimination. The basic idea is as follows. Suppose that demand conditions are such that the monopolist would like to price discriminate against the less efficient informationgatherers; that is, suppose the submarket consisting of inefficient consumers is more price inelastic. Given these potential gains from discrimination, the monopolist must also discover some method of identifying the inefficient, price inelastic consumers. Simply permitting dispersion is such a method since less-efficient information gatherers will search less and thus on average pay a higher price than will efficient searchers. The very presence of dispersion both splits the market and charges a higher purchase price to the submarket of inefficient searchers. Thus, dispersion acts as a costly device for sorting consumers into submarkets to permit price discrimination. If it is not too costly and demand elasticities vary in the " correct " direction so that the feasible price discrimination is profitable, then dispersion is more profitable than a single price.

Estimates of the Trade and Welfare Effects of NAFTA

Abstract: We build into a Ricardian model sectoral linkages, trade in intermediate goods, and sectoral heterogeneity in production to quantify the trade and welfare effects from tariff changes. We also propose a new method to estimate sectoral trade elasticities consistent with any trade model that delivers a multiplicative gravity equation. We apply our model and use our estimated elasticities to identify the impact of NAFTA's tariff reductions. We find that Mexico's welfare increases by 1.31%, U.S.'s welfare increases by 0.08%, and Canada's welfare declines by 0.06%. We find that intra-bloc trade increases by 118% for Mexico, 11% for Canada and 41% for the U.S. We show that welfare effects from tariff reductions are reduced when the structure of production does not take into account intermediate goods or input-output linkages. Our results highlight the importance of sectoral heterogeneity, intermediate goods and sectoral linkages for the quantification of the welfare gains from tariffs reductions.

A Portfolio View of Banking with Interest and Noninterest Activities

Abstract: This paper uses a portfolio framework to evaluate the impact of increased noninterest income on equity market measures of return and risk of U.S. bank holding companies from 1997 to 2004. The results indicate that the banks most reliant on activities that generate noninterest income do not earn higher average equity returns, but are much more risky as measured by return volatility (both total and idiosyncratic) and market betas. This suggests that the pervasive shift toward noninterest income has not improved the risk/return outcomes of U.S. banks in recent years.