Book Reviews

Companion to Contemporary Economic Thought by DAVID GREENAWAY, MICHAEL BLEANEY and IAN M.T. STEWART (eds.), (London, New York: Routledge, 1991, pp xii and 858, ISBN 0 415 02612 1. International Adjustment and Financing. the Lessons of 1985–1991 by C. FRED BERGSTEN, (ed.), (Washington: Institute for International Economics, 1992), pp xiii and 335, US $34.95 hardback, US $24.95 softback, ISBN 0 88132 142 7 and 0 88132 112 5. Financial Instability and the International Debt Problem by GEORGE MCKENZIE and STEPHEN THOMAS (Basingstoke: Macmillan, 1992), pp ix and 211, $40 hardback, ISBN 0 333 46419 2. Down in The Dumps, Administration of the Unfair Trade Laws by RICHARD BOLTUCK and ROBERT E. LIT AN (eds.), (Washington, DC: The Brookings Institution, 1991). pp xii and 350, US $34.95 hardback, US $15.94 softback, ISBN 0 8157 1020 8, 0 8157 1019 4. Industrial Reform in Socialist Countries, From Restructuring to Revolution by IAN JEFFRIES (Aldershot: Edward Elgar Publishing Ltd., 1992), pp x and 294, $45.00 hardback, ISBN 1 85278 380 X.     

The Effect of Interest Rate Changes on the Common Stock Returns of Financial Institutions

This paper examines the relation between the interest rate sensitivity of common stock returns and the maturity composition of the firm's nominal contracts. Using a sample of actively traded commerical banks and stock savings and loan associations, common stock returns are found to be correlated with interest rate changes. The co-movement of stock returns and interest rate changes is positively related to the size of the maturity difference between the firm's nominal assets and liabilities.     

Competing for Attention: Lobbying Time‐Constrained Politicians

We develop a model of lobbying in which a time and resource constrained policymaker first chooses which policy proposals to learn about, before choosing which to implement. The policymaker reviews the proposals of the interest groups who provide the highest contributions. We study how policy outcomes and contributions depend on policymaker constraints and the design of the “Contest for Attention.” Among other results, awarding attention to the highest contributors generally guarantees the first best policy outcome. It can also lead to the highest possible contributions, suggesting that a policymaker may not need to sacrifice policy in order to maximize contributions. Our results also give insight into other settings where agents compete for a decision maker's attention.     

A VARMA Analysis of the Causal Relations Among Stock Returns,Real Output,and Nominal Interest Rates

Previous research has documented a negative relation between common stock returns and inflation. Recently, Fama 3 and Geske and Roll 6 have argued that this relation results from a more fundamental one between real activity and expected inflation. Stock returns, they argue, signal changes in real activity, which in turn affect expected inflation. However, unlike Fama, Geske and Roll argue that changes in real activity result in changes in money supply growth, which in turn affect expected inflation. Empirical tests have analyzed separately each link in the proposed causal chain. In this article, we investigate simultaneously the relations among stock returns, real activity, inflation, and money supply changes using a vector autoregressive moving average (VARMA) model. Our empirical results strongly support Geske and Roll's reversed causality model.     

The Impact of Credit Counseling on Subsequent Borrower Behavior

The study examined the impact of individualized credit counseling delivered to nearly 8,000 consumer clients during 1997. Credit bureau data provided objective measures of credit performance at a variety of margins between 1997 and 2000 for counseled clients, relative to a comparison group of uncounseled borrowers. Receipt of counseling was associated with a positive change in borrower credit profiles. Techniques to control for self‐selection into counseling reveal that much of the improvement was attributable to characteristics unique to consumers who sought counseling. But counseling itself was associated with substantial reductions in debt and account usage, and appeared to provide the greatest benefit to those borrowers who had the least ability to handle credit prior to counseling.