WILL RECENT HIGH GROWTH RATES OF MONEY REVIVE INFLATION?

From the end of 1984 through the middle of 1986, the monetary aggregate Ml growth rate has been extremely rapid by historical standards. The author argues that much of this rapid Ml growth reflects a transfer of funds out of banks' nonmonetary liabilities into banks' negotiable order of withdrawal (NOW) accounts. Prompting this transfer was the fall in market rates relative to rates offered on NOWs. In addition, the level of compensating balances that banks required of their corporate customers appears to have become more sensitive to market rates. Two measures are suggested to increase the usefulness of Ml targeting. The first is to use a shift-adjusted Ml series, that is, a series adjusted for the flow of funds between NOW accounts and time deposits of banks. The second is to adjust Ml targets in light of interest rate changes.     

Liquidation Values and Debt Capacity: A Market Equilibrium Approach

We explore the determinants of liquidation values of assets, particularly focusing on the potential buyers of assets. When a firm in financial distress needs to sell assets, its industry peers are likely to be experiencing problems themselves, leading to asset sales at prices below value in best use. Such illiquidity makes assets cheap in bad times, and so ex ante is a significant private cost of leverage. We use this focus on asset buyers to explain variation in debt capacity across industries and over the business cycle, as well as the rise in U.S. corporate leverage in the 1980s.     

An International Study of Tax Effects on Government Bonds

It is shown that coupon bonds alone are not sufficient to span time-dated claims on ordinary income, capital gains, and non-taxable wealth. In an incomplete bond market where the pure dated claims are not spanned by existing bonds, marginal rates of substitution between present consumption and pure dated claims on ordinary income, capital gains income, and non-taxable wealth, respectively, can differ across bondholders. However, the relative pricing of coupon bonds in each of these countries is shown to be consistent with the tax status of the major (non-tax-exempt) holders of government debt.     

Corporate Behavior in Adjusting to Capital Structure and Dividend Targets: An Econometric Study

This study of financing decisions by U.S. corporations examines the issuance of long term debt, issuance of short term debt, maintenance of corporate liquidity, issuance of new equity, and payment of dividends. Given costs and imperfections inherent in markets, a firm's financial behavior is characterized as partial adjustment to long run financial targets. Individual firm data are used so that speeds of adjustment are allowed to vary by company and over time. The results suggest that financial decisions are interdependent and that firm size, interest rate conditions, and stock price levels affect speeds of adjustment.     

BACK TO GOLD, 1252

De tous les appareils enregistreurs, capables de révéler a l'historien les mouvements pro-fonds de l'economie, les phénomènes monétaires sont sans doute le plus sensible. Mais… ils ont été et sont, a leur tour, des causes: quelque chose comme un sismographe qui, non content de signaler les tremblements de terre, parfois les provoquerait.     

Measuring Asset Values for Cash Settlement in Derivative Markets: Hedonic Repeated Measures Indices and Perpetual Futures

Two proposals are made that may facilitate the creation of derivative market instruments, such as futures contracts, cash settled based on economic indices. The first proposal concerns index number construction: indices based on infrequent measurements of nonstandardized items may control for quality change by using a hedonic repeated measures method, an index number construction method that follows individual assets or subjects through time and also takes account of measured quality variables. The second proposal is to establish markets for perpetual claims on cash flows matching indices of dividends or rents. Such markets may help us to measure the prices of the assets generating these dividends or rents even when the underlying asset prices are difficult or impossible to observe directly. A perpetual futures contract is proposed that would cash settle every day in terms of both the change in the futures price and the dividend or rent index for that day.