Federal Deposit Insurance,Regulatory Policy,and Optimal Bank Capital*

This paper seeks to explain the combination of explicit and implicit pricing for deposit insurance employed by the FDIC. Essentially, the FDIC sells two products—insurance and regulation. To span the product space, it must and does set two prices. We argue that the need to establish regulatory disincentives to bank risk-taking is the heart of the controversy over the adequacy of bank capital and that the ability to close risky banks before exhausting their charter value (i.e., the value of their right to continue in business) stands at the center of these disincentives and in front of the FDIC's insurance reserves.     

Optimal Aggregation of Money Supply Forecasts: Accuracy,Profitability and Market Efficiency

We present a general procedure for aggregating expert forecasts which exploits regularities in the structure of information within the forecaster population. Specific information structures lead to aggregation methods which adjust for additive bias, differences in individual accuracy, and correlation among forecasts. As an application, we construct composite predictions of the weekly change in the money supply from forecasts made by twenty major securities dealers, for which high positive correlation is found to be a significant characteristic. Due to instability in the information structure, our methods cannot improve on the accuracy of a simple average in this case. However, they do capture information about the correlation among money supply forecasts which is not fully impounded in short-term interest rates. Forecasts from our models accurately predict the direction of price changes for Treasury bills and Treasury bill futures after a money supply announcement.     

Rewards Available to Currency Futures Speculators: Compensation for Risk or Evidence of Inefficient Pricing?

Filter, channel and moving-average trading rules are compared with rules which use ARIMA price forecasts, by evaluating their ex ante performance for currency futures transactions from December 1981 to November 1987. All of the trading rules are profitable. Market efficiency is discussed Monte Carlo results strongly suggest that the trading profits are too large to be explained by the elusive, time-varying risk premium sought in forward market literature     

A MATCHED PAIRS ANALYSIS OF STATE GROWTH DIFFERENCES

The American states have provided a rich laboratory in which to examine influences on economic growth, physical capital, human capital, and a variety of policy variables. Existing studies typically use broad cross sections of all states or particular regional subsamples. Pairwise matching is an alternative design for better controlling of omitted variables. We estimate a growth model of U.S. states for 1997–2005 before and after applying different pairwise matching techniques. Our results indicate that sample estimates based on pairwise matching substantially improve the overall ability of the growth model to identify the growth‐enhancing effects of lower tax burdens in general and lower individual income‐tax rates in particular. These effects are more pronounced with narrower matching criteria. (JEL H00, C29, O40)     

Racial Differences in Consumer Environmental Concern

Past research has suggested that black and white consumers differ in their concern for the environment. The general consensus has been that whites are significantly more concerned than blacks about environmental issues. Most of this research, however, Is limited in scope and fails to account for variables, such as education and income, which may help to explain these differences. This study investigates and analyzes black and white consumer environmental concern. Results of this study indicate that there are significant differences between African-Americans and white Americans in their environmental concern at lower income and educational levels. However, as income and education rise, the gap in environmental concern between blacks and whites significantly decreases. These findings provide important implications for policy makers in making decisions related to environmental education and protection as well as for businesses intending to target consumers with environmentally focused promotional campaigns.     

Keynesian Inefficiency and Optimal Policy: A New Monetarist Approach

A simple model of monetary/labor search is constructed to study Keynesian indeterminacy and optimal policy. In the model, economic agents have trouble splitting the surplus from exchange appropriately, and we consider monetary and fiscal policies that correct this Keynesian inefficiency. A Taylor rule neither implies determinacy, nor does it support an efficient outcome. An optimal policy yields an efficient and determinate allocation of resources, but equilibrium policy actions, wages, and prices are indeterminate at the optimum.     

Low Income Dynamics in 1990s Britain

This paper analyses low income dynamics in Britain using the first four waves of the British Household Panel Survey. There is much low income turnover: although there is a small group of people who are persistently poor, more striking is the relatively large number of low income escapers and entrants from one year to the next. Simulations using estimated low income exit and re-entry rates demonstrate the importance of repeated low income spells for explaining a person's experience of low income over a given period. We also document the characteristics of low income stayers, escapers and entrants.