The Effects of Regulating Hidden Add‐On Costs

We examine the welfare effects of price and disclosure regulation in a model where firms can shroud add‐on costs, such as penalty fees for consumer financial products. Such regulation can increase or decrease welfare even when there are no direct costs. There are, however, strong complementarities between price controls and disclosure mandates: conditional on disclosure being mandated, price controls always (weakly) increase welfare, and conditional on prices being sufficiently constrained, disclosure mandates always (weakly) increase welfare.     

Measuring the Information Content of the Beige Book: A Mixed Data Sampling Approach

Studies of the predictive ability of the Federal Reserve's Beige Book for aggregate output and employment have proven inconclusive. This might be attributed, in part, to its irregular release schedule. We use a model that allows for data sampling at mixed frequencies to analyze the predictive power of the Beige Book. We find that the Beige Book's national summary and District reports predict GDP and aggregate employment and that most District reports provide information content for regional employment. In addition, there appears to be an asymmetry in the predictive content of the Beige Book language.     

Contract enforcement,institutions, and social capital: the Maghribi traders reappraised1

Social scientists draw important lessons for modern development from the medieval Maghribi traders who, it has been argued, lacked effective legal mechanisms for contract enforcement and instead relied on informal sanctions based on collective ostracism within an exclusive coalition. We show that this claim is untenable. Not a single empirical example adduced as evidence of the putative coalition shows that a coalition actually existed. The Maghribi traders made use of the formal legal system in order to enforce agency agreements in long‐distance trade. A subset of the traders did form a web of trusted business associates that contributed to informal contract enforcement, but this was very different from the hypothesized coalition, in neither being exclusive nor having a clearly defined membership. The Maghribi traders combined reputation‐based sanctions with legal mechanisms, in ways that resemble the practices of medieval European merchants. We find no evidence that the Maghribi traders had more ‘collectivist’ cultural beliefs than their European counterparts.     

Electronic funds transfer at point of sale: a consumer viewpoint*

The first section examines the advantages and disadvantages of electronic funds transfer at point of sale (EFTPOS) as a payment method for consumers. The next section looks at the legal issues and especially at consumer problems arising from the use of wellestablished related technology, automated teller machines (ATMs). The third part sets out the European Commission's strategy for EFTPOS. Finally, the last section summarizes the consumer issues involved and suggests that an international legal framework is needed to deal with them.     

Risk Management: Coordinating Corporate Investment and Financing Policies

This paper develops a general framework for analyzing corporate risk management policies. We begin by observing that if external sources of finance are more costly to corporations than internally generated funds, there will typically be a benefit to hedging: hedging adds value to the extent that it helps ensure that a corporation has sufficient internal funds available to take advantage of attractive investment opportunities. We then argue that this simple observation has wide ranging implications for the design of risk management strategies. We delineate how these strategies should depend on such factors as shocks to investment and financing opportunities. We also discuss exchange rate hedging strategies for multinationals, as well as strategies involving “nonlinear” instruments like options.     

Estimating Probabilities of Recession in Real Time Using GDP and GDI

This work estimates Markov switching models on real‐time data and shows that the growth rate of gross domestic income (GDI), deflated by the gross domestic product (GDP) deflator, has done a better job recognizing the start of recessions than has the growth rate of real GDP. This result suggests that placing an increased focus on GDI may be useful in assessing the current state of the economy. In addition, the paper shows that the definition of a low‐growth phase in the Markov switching models changed considerably from 1978 to 2005. The models increasingly came to define this phase as an extended period of around zero rather than negative growth, diverging somewhat from the traditional definition of a recession.     

DO ROCKETS RISE FASTER AND FEATHERS FALL SLOWER IN AN ATMOSPHERE OF LOCAL MARKET POWER? EVIDENCE FROM THE RETAIL GASOLINE MARKET*

This study explores the possibility that local market power influences the observed asymmetric relationship between changes in wholesale gasoline costs and changes in retail gasoline prices. I exploit an original data set of weekly gas station prices in Southern California from September, 2002 to May, 2003, and take advantage of detailed station and local market level characteristics to determine the extent to which geographic and product differentiation influence price response asymmetry. I find that brand identity, proximity to rival stations and local market features and demographics each influence a station's predicted price‐response asymmetry.     

A Gap‐Filling Theory of Corporate Debt Maturity Choice

We argue that time variation in the maturity of corporate debt arises because firms behave as macro liquidity providers, absorbing the supply shocks associated with changes in the maturity structure of government debt. We document that when the government funds itself with more short‐term debt, firms fill the resulting gap by issuing more long‐term debt, and vice versa. This type of liquidity provision is undertaken more aggressively: (1) when the ratio of government debt to total debt is higher and (2) by firms with stronger balance sheets. Our theory sheds new light on market timing phenomena in corporate finance more generally.     

The Performance of European Works Councils in Engineering: Perspectives of the Employee Representatives

Drawing on a structured survey of European works council representatives within the engineering industry, this paper identifies a number of shortfalls in the performance of European works councils. In particular, it shows that European works council representatives retain a national rather than a European point of reference and are critical of the integration of European works councils with other aspects of trade union organization and activity. In contrast, European works council representatives welcome the transparency within multinational companies introduced by the directive. The paper concludes in terms of a range of revisions that might usefully be introduced to improve the performance of the directive.