Government revenue from money creation with government and private money

For a stationary state, we show that if the government is as efficient as a competitive banking industry in producing money, then the substitution of private for government money does not alter the revenue from money creation or the present value maximizing holding cost of money. If households and non-banking firms hold both government and private money, then maximum present value requires that the reserve ratio maximize the monetary base and that the base nominal interest elasticity equal minus one. With perfect foresight, zero money balances and zero revenue from money creation is the only time consistent revenue maximizing solution.     

Banks, private money, and government regulation

We study competition between inside and outside money in economies with trading frictions and financial intermediation. Claims on banks circulate if the redemption rate is low. When the quantity of fiat money is scarce, coexistence of inside and outside money dominates equilibria with a unique medium of exchange. If outside money is ample, banks choose to redeem claims in outside money, which increases welfare. Under binding reserve requirements, tightening monetary policy leads to credit rationing. Our results support recent trends toward lower reserve requirements. However, we also identify situations where restrictions on note issue are beneficial.     

The impact of government deficits on money growth in developing countries

This paper investigates the relationship between government budget deficits and money growth in the developing countries for which reliabile data exist. It is sometimes suggested that it is more likely that money growth follows debt growth in developing countries, due to the embryonic state of capital markets and because the central bank generally comes under direct control of the minister of finance. Our results provide only mixed support for this contention, however. In the majority of countries in our sample there is no evidence that government deficits affect money growth. For high-inflation years there seems to be more support for a relationship between deficits and money growth.     

The individual's transactions demand for money: A utility maximization approach

This model of the transactions demand shows how an individual may simultaneously choose patterns of consumption, money holdings, and bond holdings over time that maximize utility when faced with a wide variety of possible cyclical patterns in his flow of income. Interesting conclusions about the transactions demand and the real balance effect are derived. For example, there is no theoretical reason to believe that a single individual's demand for money is proportional to his income, and a small excess stock of money is likely to cause a large increase in his level of consumption.     

Shorting Restrictions: Revisiting the 1930s

Several events in the 1930s made shorting more difficult or impossible in the United States. In 1931, the NYSE banned shorting for two days and later prohibited shorting on a downtick. In 1932, brokers needed written authorization before lending a customer's shares, and the U.S. Senate released a list of the biggest short sellers. In 1938, the tick test was tightened. Short interest and securities lending data indicate that each event made shorting more difficult. Average returns associated with the events are significantly positive, consistent with disagreement models. Liquidity is also affected. Recent U.S. regulatory changes echo these earlier restrictions.     

中国清末民初银本位下的汇率浮动:影响和启示

清末民初,银本位下的中国货币对大多数金本位国家的货币汇率自由浮动。浮动汇率并非影响中国国际收支和宏观经济的主要因素:在汇率大体持续贬值情况下,中国贸易逆差不断增大;汇率贬值有利于刺激外商直接投资和侨汇流入,弥补贸易逆差。关键问题是中国货币状况乃至整体经济活动受制于白银数量,容易大起大落。当前中国汇率弹性有待提高,对货币调控造成较大制约。我国汇率浮动早已有之,不必过于担心,中国完全具备主动加快汇率改革的条件。     

The precautionary demand for money: A rigorous foundation

Consumers' demand for money to hold is shown rigorously to be related to possible but uncertain purchase opportunities rather than to total consumption (income) or to the variability of bond yields. A formal model of consumers' demand for precautionary balances is analyzed. It implies that cash balances demanded will be changed by different amounts in response to equivalent changes in the rates of time preference and inflation. This perhaps explains recent instability in money demand estimates.     

Local government responsiveness to federal transfers: theory and evidence

Federal transfers can depend on local fiscal capacity which is measured by local tax bases. The aim of this paper is to understand to what extent and how these transfers affect local tax decisions. We develop a model with two provinces producing one mobile good. The good is taxed according to the destination principle. Final consumers decide to buy the good from the province where it is cheaper. The two provinces engage in tax competition. The introduction of scale economies into the shopping technology generates nonlinear tax reaction functions which make it possible to test the effect of a transfer equalizing local tax bases on tax competition in two complementary tax regimes. Used for this purpose are cigarette and gasoline tax data from Canada. In the case of cigarette tax, it is found that nonlinearity in tax competition is almost entirely offset when equalization holds: tax competition in the two tax regimes become closer. The shopping technology for gasoline gives less scope for scale economies, so that equalization does not affect reaction functions.      

The eurosystem money market auctions: A banking perspective

This paper analyzes the individual bidding behavior of German banks in the money market auctions conducted by the ECB from the beginning of 2000:IIIQ to the end of 2001:IQ. Our approach takes a variety of characteristics of the individual banks into account, particularly variables that capture the different use of liquidity and the different attitude towards liquidity risk of the individual banks. It turns out that these characteristics are reflected in banks’ bidding behavior. Thus, our study contributes to a deeper understanding of the way liquidity risk is managed in the banking sector.     

The optimum quantity of money rule in the theory of public finance

This paper examines optimal tax policy in a monetary economy in which money serves as an intermediate good that helps facilitate the conversion of scarce resources into final consumption goods by enabling consumers to economize on the costs of transacting. It is shown that in such an environment, even though distorting taxes must be levied for revenue purposes, the optimal tax structure calls for abstaining from inflationary finance and adopting the optimum quantity of money rule.     

Securities legislation and the accounting profession in the 1930s: The rhetoric and reality of the American Dream

Merino and Neimark (“Disclosure Regulation and Public Policy", Journal of Accounting and Public Policy, Fall 1982, pp. 33–57) examined passage of securities regulation in the United States in the 1930s, concluding that the regulation should be viewed as symbolic (i.e. not expected to result in significant changes in distribution of economic resources), a means of restoring investor confidence and preserving the status quo. Since that time, a number of traditional and critical studies have examined that thesis and offered new insights into the complex interrelationships found in the passage of securities legislation (e.g. Neu, “Reading the Regulatory Text: Regulation and the New Stock Issue Process", Critical Perspectives on Accounting, December 1992, pp. 359–388; Bealing, “Actions Speak Louder Than Words: An Institutional Perspective on the SEC", Accounting Organizations and Society, Vol. 19, 1994, pp. 555-569; Bealing, et al., “Early Regulatory Actions by the SEC: An Institutional Theory Perspective on the Dramaturgy of Exchange"Accounting Organizations and Society, Vol. 21, No. 4, 1996, pp. 317–338). We continue this line of research by developing the rationale behind the argument that symbolic legislation might be sufficient to restore investor confidence. We use as our framework the pragmatic concept of democratic conversation, unique to the United States, to frame the ideological debate. We posit that securities legislation can best be understood as an effort to reestablish the viability of what has been labeled the “American dream". We concur with the conclusion of Wettergreen (“The Regulatory Policy of the New Deal", The New Deal, 1989, pp. 199–213) that passage of the securities legislation must be examined as a response to a moral crisis of capitalism, generated by the “immoral behavior" of the capitalist elite. Following Dewey, we posit that the first priority of any regulation had to be to establish the moral legitimacy of capitalism by restoring trust in the existing system. As Dewey (Liberalism and Social Action, New York: Putnam, 1935) concluded, radical change was needed, otherwise it would merely be symbolic and used as propaganda to maintain the status quo.We then focus on the framers of regulation and the accounting profession. We do this by examining the private correspondence and the actions of the regulators during the early years of the SEC act. We believe our analysis shows that the early SEC commissioners had a commitment to the private property rights paradigm, and were unwilling to confront the monied interests. We support our position in a historical analysis of Accounting Series Release(ASR) No. 4, the Whitney case and the North American case. We interpret the historical evidence as a desire by the regulators to maintain the status quo. Thus, even if we believed the legislation was intended to cause a “real" change, the enforcement was not performed in an activist manner to initiate the change. For example, William O. Douglas (the second chairman of the SEC), who was no doubt a modern day judicial activist, was not an activist when it came to regulation and accounting related issues (e.g. full disclosure). Personal correspondence shows he had close relations with the accounting profession and raises the possibility that he may have been “captured" by the profession.In summary, our arguments are as follows: (i) the rhetoric used by the New Deal was intended to restore trust and fairness in American society; (ii) the underlying basis for the political persuasion was the restoration of the American dream in a liberal environment; (iii) in a contemporaneous analysis of the New Deal environment, Dewey (Liberalism and Social Action, New York: Putnam, 1935) states that, without radicalism of change, the New Deal was doomed to failure since it would be viewed as protecting the status quo—we concur with this view as to the securities regulation and the behavior of Douglas; (iv) Douglas appears to act in favor of the status quo due to his close relations with the accounting profession, and, in our view, being “captured" by the profession and (v) we support our thesis by examining several SEC actions during Douglas’s tenure.     

Political institutions and government spending behavior: theory and evidence from Iran

This study examines how the quality of political institutions affects the distribution of the government budget in Iran. We first introduce a mechanism through which democracy can shift government expenditure from national defense (military) to productivity-enhancing public spending (e.g., education). Using impulse response functions and a variance decomposition analysis on the basis of a vector autoregressive (VAR) model, our results imply that the response of military spending to an improvement (a deterioration) of democratic institutions is negative (positive) and statistically significant, whereas that of education spending is positive (negative) and significant. Our results are robust to other indicators of political institutions, different orderings of variables in the VAR, and alternative specifications of government spending categories.     

The role of accounting in money laundering and money dirtying

This paper examines the processes involved in the misapplication of accounting knowledge from the angle of financial crime. It analyses the importance of accounting knowledge in the construction of money laundering operations and the development of money dirtying. It shows that contrary to a widely held idea, money laundering and money dirtying techniques are not based on the same accounting practices and deviant mechanisms. This paper explores three degrees of integrating accounting knowledge in the organization of financial crime procedures. It sums up the motivations of white-collar criminals and demonstrates that the preparation of a money laundering operation differs from the financing of terrorist activities.     

On money and output: Is money redundant?

There is an emerging consensus that money can be largely ignored in making monetary policy decisions. Rudebusch and Svensson [1999, Policy Rules and Inflation Targeting. In Taylor, J.B. (Ed.), Monetary Policy Rules. University of Chicago Press, Chicago, 203-246; 2002, Eurosystem Monetary Targeting: Lessons from US Data. European Economic Review 46, 417-442] provide some empirical support for this view. We reconsider the role of money and find that money is not redundant. More specifically, there is a significant statistical relationship between lagged values of money and the output gap, even when lagged values of real interest rates and lagged values of the output gap are accounted for. We also find that inside and outside money provide significant information in predicting movements in the output gap.     

An annual money demand and supply model for the U.S.: 1924–1940/1949–1966

This paper describes the monetary sector in the Hickman-Ceen medium-range forecasting model, which is estimated on annual data from 1924 to 1966. A characterization of the individual bank as a profit maximizing firm is used to derive a ‘portfolio-balance’ model of the money supply mechanism. The estimation results: suggest that, for the sample period at least, M2 is the appropriate definition of money; corroborate earlier findings that there is no evidence of a so-called ‘low-level liquidity trap’ in the Thirties; confirm the reliability of earlier annual- data estimates of the demand for money; and provide indirect evidence that non-monetary disturbances to macroeconomic equilibrium were relatively unimportant during the sample period.     

Cagan’s paradox and money demand in hyperinflation: Revisited at daily frequency

Using daily data the Cagan money demand is estimated and accepted for the most severe portion of Serbia’s 1992–1993 hyperinflation, i.e. its last 6 months. An implication is that the public adjusted daily throughout this extreme period. Moreover, the obtained semi-elasticity estimates are by far lower than those previously found using monthly data sets. Consequently, the daily estimates reject the longstanding Cagan’s paradox, based on monthly studies, by showing that the economy has been on the correct, increasing side of the Laffer curve almost through the end of hyperinflation. This strongly supports the view that hyperinflation is triggered and driven all way through its end by the government’s hunt for non-decreasing seigniorage. Daily adjustments of public in hyperinflation can account for the difference between the results obtained at daily and monthly frequencies, calling into question the latter. Some evidence is offered that the findings of this paper may hold for other hyperinflations.