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. 41, No. 2-3, March-April

A Short History of Price Level Convergence in Europe
DURING THE LAST five decades, European countries made a huge effort to integrate their national markets. The signing of the Treaty of Rome on the establishment of the European Economic Community 50 years ago (1957), the completion of the Single Market...
Bailey's Measure of the Welfare Costs of Inflation as a General-Equilibrium Measure
SINCE THE SEMINAL work of Bailey (1956), economists have devoted considerable effort to measuring the welfare cost of inflation. Bailey's formula has been derived in a partial-equilibrium setting. It treats real money balances as a consumption good...
Disagreement and Biases in Inflation Expectations
DIFFERENCES IN AGENTS' beliefs and their importance to economic analysis has been emphasized by economists as early as Pigou (1927) and Keynes (1936). (1) A better understanding of the source of such disagreement has become increasingly important in...
Does Global Liquidity Help to Forecast U.S. Inflation?
ACCURATE INFLATION FORECASTS are essential for successful monetary policymaking. Effective predictors are essential for producing accurate forecasts. In the recent past, characterized by low and stable inflation, researchers in academia and policy...
Does Interbank Borrowing Reduce Bank Risk?
POL1CYMAKERS HAVE SHOWN considerable interest in market discipline as a supplement to bank regulation. The idea is that regulators can use market signals to identify banks that the market perceives as riskier (Berger 1991). (1) Most of the "market...
Do Solicitations Matter in Bank Credit Ratings? Results from a Study of 72 Countries
UNSOLICITED BANK CREDIT ratings assigned to banks by nationally recognized statistical rating organizations (NRSROs), such as Standard & Poor's Ratings Services (S&P's) and Moody's Investor Service (Moody's), are controversial. Credit ratings...
Flexible Majority Rules for Central Banks
THIS PAPER PROPOSES a flexible majority rule for central banks. The flexible majority rule works as follows: within a prespecified time frame, the size of the majority necessary for adopting an interest-rate change depends on the size of the interest-rate...
Individual's Religiosity Enhances Trust: Latin American Evidence for the Puzzle
IN RECENT YEARS, and after a long period of neglect, the economic profession has begun to devote increasing attention to religion. This "emerging" discipline, known as the Economics of Religion, has two prominent approaches: the economic analysis of...
Noneconomic Engagement and International Exchange: The Case of Environmental Treaties
COUNTRIES, LIKE PEOPLE, interact with each other on a number of different dimensions. Some interactions are strictly economic; for instance, countries engage in international trade of goods, services, capital, and labor. But many are not economic,...
Nonseparable Preferences, Fiscal Policy Puzzles, and Inferior Goods
THIS PAPER STUDIES purely preference-based explanations of some recent puzzles pertaining to the effects of fiscal policy shocks. The puzzles concern the positive response of private consumption to government spending (and the associated positive co-movement...
Precautionary Saving and Consumption Smoothing across Time and Possibilities
BECAUSE IT DOES not distinguish between aversion to risk and aversion to intertemporal substitution, the traditional theory of precautionary saving based on intertemporal expected utility maximization is a framework within which one cannot ask questions...
Purdah-On the Rationale for Central Bank Silence around Policy Meetings
CENTRAL BANKS AROUND the globe are pursuing not only different policy objectives, but also vastly different communication strategies. Despite these differences, there is one element that most central banks share, namely, the purdah, that is, the practice...
Real Wage Rigidities and the Cost of Disinflations
Ball and Romer (1990) show that nominal rigidities need to be complemented by real rigidities in order to generate a suitable endogenous propagation mechanism of monetary policy. Indeed, it is well known that the widely used Calvo price staggering...
Reconciling Bagehot and the Fed's Response to September 11
THIS PAPER STUDIES liquidity provision by a central bank (CB) with commodity money. In contrast to much of the theoretical literature on liquidity provision by a CB, which focuses on fiat money, I show that lending at a high rate of interest may be...
The Feeble Link between Exchange Rates and Fundamentals: Can We Blame the Discount Factor?
The feeble link between nominal exchange rates and economic fundamentals, often termed the "exchange rate disconnect puzzle," is a stylized fact documented with remarkable robustness in empirical research (Meese and Rogoff 1983, Mark 1995, Cheung,...
The Relationships between Permanent and Transitory Movements in U.S. Output and the Unemployment Rate
MANY MACROECONOMIC TIME series can usefully be decomposed into two unobserved components. One unobserved component reflects permanent, or trend, movements in the series, while the other captures transitory movements in the series. There may exist important...
The Spirit of Capitalism, Precautionary Savings, and Consumption
THE GREAT SOCIOLOGIST Weber (1948) viewed the desire to accumulate wealth as an end in itself as the defining characteristic of capitalist societies. Recently, this notion of the "spirit of capitalism" has been used to address a range of issues, including...
Whither Loose Change? the Diminishing Demand for Small-Denomination Currency
"Except for the smallest of transactions, money will no longer be a physical thing." (Forbes 1967 as cited in Flannery 1996) "The use of cash and currency will drop drastically ..." (Flannery and Jaffee 1973) "Cash is dirty, inefficient--and...