Journal of Money, Credit & Banking

Reports major findings in the study of financial institutions, financial markets, monetary and fiscal policy, credit markets, money and banking.

Articles from Vol. 27, No. 3, August

Inflation and Uncertainty: Tests for Temporal Ordering
A SUBSTANTIAL BODY of evidence indicates that the rate of inflation is positively associated with inflation uncertainty, both across countries and for the United States over time. Holland (1984) reviews the earlier studies, while Froyen and Waud (1987),...
Interest-Bearing Currency: Evidence from the Civil War Experience
In "Interest-Bearing Currency: Evidence from the Civil War Experience," James Gherity (1993) reports an experience with interest-bearing notes during the American Civil War that runs counter to the predictions of the legal restrictions theory of the...
Internal Finance and Firm Investment
1. INTRODUCTION RECENT RESEARCH ON DETERMINANTS of firm-level fixed investment has stressed the importance of proxies for firms' internal finance as explanatory variables, holding constant measures of firm opportunities or the cost of capital.(1) Most...
Margin Requirements, Price Fluctuations, and Market Participation in Metal Futures
THE OCTOBER 1987 STOCK MARKET CRASH renewed interest among regulators and economists in using margin requirements as a tool of controlling excessive speculation in cash and futures markets. For example, the 1988 Brady Report's recommendations of consistent...
Motivations for Bank Mergers and Acquisitions: Enhancing the Deposit Insurance Put Option versus Earnings Diversification
THE PACE OF MERGERS AND ACQUISITIONS among U.S. commercial banks has increased dramatically over the past several years. From an annual average of 170 mergers during the 1960 to 1979 period, the annual average increased to about 498 during the 1980 to...
Multiple Reserve Requirements
THROUGHOUT MOST OF THEIR MODERN HISTORY, the monetary authorities of many small open economies have been subordinated to the fiscal authorities. Once the fiscal authority has decided on the size of the deficit and the portion to be financed domestically,...
Myopia, Liquidity Constraints, and Aggregate Consumption: A Simple Test
THE NEOCLASSICAL life cycle--permanent income hypothesis (LCH/PIH) implies that predictable movements in income should not affect consumption. Recent tests using aggregate time-series data consistently reject this prediction. Campbell and Mankiw (1990),...
New and Old Models of Business Investment: A Comparison of Forecasting Performance
RECENT EMPIRICAL RESEARCH on investment has focused on the estimation of the stochastic first-order conditions, or Euler equations, from dynamic models derived under rational expectations. Because these models have an explicit structural interpretation,...
Policy Accommodation and Gradual Stabilizations
ALTHOUGH GOVERNMENTS AND THE PUBLIC dislike inflation, it is difficult to reduce it. Moreover, many countries that have succeeded in reducing inflation have done it slowly, despite the authorities' commitment to and the broad public support for an anti-inflationary...
Risk-Based Capital Standards and the Credit Crunch
ONE OF THE MYSTERIES of the sluggish recovery from the 1990-91 recession was the failure of the economy to respond to the stimulus of lower interest rates, with one often-cited explanation for the slow recovery being the failure of the banking system...
Savings and Stabilization Policy in a Pre-Post-Socialist Economy
IN THE LATE 1980s nominal incomes in the USSR rose rapidly while the nominal prices of consumer goods were essentially fixed. Unprecedented shortages emerged and savings soared: the ratio of household savings to disposable income increased from 7 percent...
Seigniorage and Inflation: The Case of Argentina
VERY HIGH INFLATIONS are usually explained by the need to raise revenue from money creation (that is, seigniorage) to finance the budget deficit. The literature on inflationary finance [as presented, for example, in Friedman (1971), Sargent and Wallace...
The Capital Crunch: Neither a Borrower nor a Lender Be
THE DRAMATIC REDUCTION in the growth rate of bank lending associated with the 1990-91 recession, particularly in New England, has evoked claims by many observers of a credit crunch. Skeptics argue, however, that weak loan growth merely reflects the normal...
The Changing Role of Commercial Banks in the Municipal Securities Market
COMMERCIAL BANKS have historically played a dominant role in the municipal securities market by owning more municipals than any other investor group. Until recently, they could borrow, invest the proceeds in municipals, and fully deduct all interest...
The Cost of Home Mortgage Credit during the 1980s
TWO HYPOTHESES came to the fore in the 1980s in terms of the S&L debacle. One was that de facto or market value insolvent S&Ls caused real interest rates during the 1980s to rise by bidding up their cost of deposits. Shoven, Smart, and Waldfogel...
The Cyclical Behavior of Prices: Interpreting the Evidence
OVER THE PAST DECADE, considerable effort has been put into updating knowledge about the stylized "facts" of the business cycle. A number of recent papers have contributed to this effort by studying cross-correlations between output and prices at business...
The Effects of Fiscal Policy in a Two-Country World Economy: An Intertemporal Analysis
THE REAGAN TAX CUTS of 1981 marked the beginning of an unusual shift in the internal and external imbalances of the United States. The gross federal debt held by the public had grown from $784 billion in 1981 to $2050 billion in 1988. The federal budget...
The Information Content of the Federal Funds Rate: Is It Unique?
FOR SOME TIME NOW, market analysts and central bankers have relied on interbank loan rates in formulating and evaluating monetary policy. Research aimed at identifying the effects of U.S. monetary policy on economic activity (for example, Bernanke 1990,...
The Option Clause in Scottish Banking, 1730-65: A Reappraisal
THE "OPTION CLAUSE" was a clause included on the notes issued by many of the Scottish banks in the period 1730-65, reserving to the issuing bank the right to delay redemption in specie for six months, with interest to be paid in the interval. Its use...
Twin Deficits versus Unpleasant Fiscal Arithmetic in a Small Open Economy
THE PURPOSE OF THIS PAPER is to study the dynamic behavior of fiscal deficits, current account imbalances, and the exchange rate in a small open economy under flexible exchange rates. We are interested in the following specific questions: Suppose the...
Unit Roots and Infrequent Large Shocks: New International Evidence on Output Growth
ECONOMISTS' UNDERSTANDING of the nature of long-run movements in real output has expanded significantly in the last five years as the literature on stochastic trends, segmented trends, shifting trends, and broken trends has grown. The simple dichotomy...
Using the Arbitrage Pricing Theory to Calculate the Probability of Financial Institution Failure
Regulators in the United States and the United Kingdom have recognized the need for risk-based capital adequacy requirements for financial institutions. The Bank for International Settlement's (BIS) capital adequacy standards for commercial banks which...
Was There a Note Issue Conundrum in the Free Banking Era?
MORE THAN EIGHTY YEARS AGO Spurgeon Bell (1912) uncovered a paradox that has since vexed banking and monetary historians. He found that national banks failed to expand their note issues despite the apparent profitability of doing so. Subsequent writers...