The Elastic Provision of Liquidity by Private Agents

I study a model of investment by financially constrained firms that are heterogeneous with respect to their exposure to an aggregate liquidity shock. A firm that is susceptible to the shock will mitigate its exposure by purchasing claims issued by a firm that is not. Liabilities of an unaffected firm may earn a liquidity premium due to their fungibility, and because they are backed by productive investment, their supply is elastic to the demand. This segmentation implies that an aggregate liquidity shock has different consequences across sectors of the economy.     

The Hierarchy of Consumer Participation and Patterns of Economic,Social, and Political Participation1

This article examines relationships between the hierarchy of consumer participation and propensities for general political and community participation. The results of an empirical study reveal how patterns of participation, knowledge seeking, and decision making are interrelated and deeply rooted in the sociopolitical culture. Cluster analysis reveals that economic, social, and political bias are cumulative in individuals, creating differential patterns in the American political culture resulting in a comparative advantage for some and a structural disadvantage for others. The findings have important implications for understanding behavior in democratic polities, market economic systems, political, economic, and social participation, citizen/consumer education and protection, and policymaking.     

Superannuation: Switching and Roulette Wheels

The introduction of choice has resulted in Australia's superannuation system providing unprecedented flexibility (through increased investment options and the timing choices) for members to optimise their expected benefits. This paper examines the impact of switching between investment options using a normalised ranked return or "roulette wheel" approach developed by Bauer and Dahlquist (2001) for the Australian setting. The paper tests various switching strategies for both single-sector and blended options, for the period 1985–2005, finding that members require forecast accuracy of around 70% to be successful at market timing. Finally, the paper considers the impact of switching strategies on accumulated balances.     

TECHNICAL DEVELOPMENT OF HOUSEHOLD APPLIANCES—FOR THE BENEFIT OF CONSUMERS OR PRODUCERS?

Two hypotheses are presented on the basis of the consumerist and private enterprise points of view of technical development of household appliances: H₁: maintaining or increasing sales of household appliances by product development can be done regardless of, or even conflicting with, consumer needs. H₂: maintaining or increasing sales of household appliances can only be done by developing products that satisfy consumer needs. To test these hypotheses the concept of utility has to be defined operationally. Assuming that household appliances are bought to be used according to their functions, utility is defined as use frequency and way of using. Using data from a Norwegian survey on the purchase and use of electric ranges and sewing machines, it is shown that all equipment studied is used frequently and correctly by too many respondents to declare them generally without utility. But for each device there was quite a large share of the respondents who did not use it. The hypothesis that products cannot be sold to consumers who do not need them, is thus rejected. The causes of the problem as well as possible means of solving it are discussed.     

Capital Market Regimes and Bank Structure in Europe

We hypothesize that fundamental features that distinguish European capital markets have predictably influenced emerging national differences in bank capitalization and loan growth. Using bank‐level data from 13 European countries, 1998 to 2004, we find evidence of positive effects of “equity‐friendly” market features on bank capitalization and positive effects of both “equity‐friendly” and “credit‐friendly” market features on loan growth. The findings are strongest in small banks and in banks with cooperative charters. Our results suggest that ongoing and prospective integration of European banking markets is mitigated by relatively static features of the equity and credit markets on which banks rely.     

The Community Reinvestment Act and Targeted Mortgage Lending

We analyze residential mortgage lending by banks in periods surrounding upgrades or downgrades in their ratings under the Community Reinvestment Act (CRA). Empirical results indicate that upgraded banks had higher relative levels of lending than did downgraded banks prior to ratings changes. Additionally, both downgraded and upgraded banks increased lending following implementation of reforms to the CRA in the 1990s, which were intended to more closely align rating assessment with lending outcomes. Little support is provided, on the other hand, for a hypothesis that banks respond to downgrades by increasing lending (despite apparent incentives for them to do so).     

International Yield Curves and Currency Puzzles

The currency depreciation rate is often computed as the ratio of foreign to domestic pricing kernels. Using bond prices alone to estimate these kernels leads to currency puzzles: the inability of models to match violations of uncovered interest parity and the volatility of exchange rates. This happens because of the FX bond disconnect, the inability of bonds to span exchange rates. Incorporating innovations to the pricing kernel that affect exchange rates but not bonds helps resolve the puzzles. This approach also allows one to relate news about cross-country differences between international yields to news about currency risk premiums.