The 1985 Ohio Thrift Crisis,the FSLIC's Solvency,and Rate Contagion for Retail CDs

This paper uses both an ARIMA transfer-function intervention model and a panel data analysis to examine the effect of the Ohio deposit insurance crisis in 1985 on the pricing of six-month retail certificates of deposit (CDs) for federally-insured Ohio banks and savings and loans. Adjusting for pricing reactions due to changes in market rates, we find a significant, unanticipated rise in CD-rate premiums on the initial event week of the crisis that continued for approximately seven weeks. Consistent with a contingent insurance guarantee hypothesis, rate premiums are found to be risk based.     

FOREIGN EXPERIENCES WITH MONETARY TARGETING: A PRACTITIONER'S PERSPECTIVE

Under certain conditions, monetary targets can reduce information costs and transaction costs to market participants. In international financial markets, these costs are associated with several types of risk which can influence the extent of international financial intermediation. During the 1970s, several factors seem to have prompted the trend toward targeting. The search by central banks for improved methods of inflation control was the primary factor. Targeting took a number of forms with respect to time periods, growth rates, and aggregates employed. In general, the experience with foreign monetary targeting to date probably has not lowered information costs or transactions costs to market participants, due to the extensive shifting between targets, changing of targeting time periods, and continual base drift. Such changes in targeting procedures along with the failure to hit targets tend to mask whether a change in monetary growth is temporary or permanent. The desire of foreign central banks to implicitly target exchange rates influences their ability to achieve monetary targets. The extent of this influence depends on the ability of foreign central banks to sterilize exchange market intervention.     

DO REAL INTEREST RATES REALLY CONTAIN A UNIT ROOT? MORE EVIDENCE FROM A BOOTSTRAP COVARIATE UNIT ROOT TEST

This paper re‐examines the empirical finding that international real interest rates usually have a unit root. This conclusion is put forth in Rapach and Weber (2004 ), using the Ng and Perron (2001 ) tests. We use Rudebusch's (1993 ) approach to construct the small sample distributions of the Ng and Perron tests, and calculate their asymptotic sizes, size‐adjusted powers and rejection rates. These numbers show that the lack of power in the Ng and Perron tests might account for the findings of Rapach and Weber (2004 ): that the unit root null cannot be rejected for most OECD countries. Size distortions are mild in the case of Ng and Perron tests for two series, but are serious for the Phillips and Perron Z‐test on inflation rates. We then apply a powerful covariate augmented Dickey–Fuller unit root test to examine the series for which stationarity cannot be determined with the Ng and Perron tests. The bootstrap technique is also used to control possible size distortions. In contrast to the results of Rapach and Weber (2004 ), the bootstrap covariate augmented Dickey–Fuller test yields striking evidence that real interest rates are stationary for 14 of 16 OECD countries, because nominal interest rates are stationary for the 14 countries, while inflation rates are stationary for all countries.     

Exodus from Sovereign Risk: Global Asset and Information Networks in the Pricing of Corporate Credit Risk

Using five‐year credit default swap (CDS) spreads on 2,364 companies in 54 countries from 2004 to 2011, we find that firms exposed to stronger property rights through their foreign asset positions (institutional channel) and firms cross‐listed on exchanges with stricter disclosure requirements (informational channel) reduce their CDS spreads by 40 bps for a one‐standard‐deviation increase in their exposure to the two channels. These channels capture effects beyond those associated with firm‐ and country‐level fundamentals. Overall, we find that firm‐level global asset and information connections are important mechanisms to delink firms from their sovereign and country risks.