Search Results
Journal Article
Economic perspective on the political history of the Second Bank of the United States
The Second Bank of the United States was an institution of first-rank importance, both politically and economically, during the early nineteenth century. This article uses recent contributions to theory on industrial organization and monetary economics to argue tentatively that conflict between debtors and creditors may have played a larger role in the bank's fortunes than previously thought.
Journal Article
Money and debt in the structure of payments
In Scott Freeman?s (1996) model, payment system arrangements based on intermediated debt that is settled with money achieve higher welfare than does direct money payment. In a simplified version of Freeman?s model, welfare can be further improved and efficiency achieved by a monetary authority participating in a secondary market for debt or by a private intermediary using a common clearinghouse device. The analysis clarifies that ordinary private agents can assume the role of central bank or clearinghouse; no artificial agent, posited solely to play that role and endowed with special ...
Journal Article
Formulating the imputed cost of equity capital for priced services at Federal Reserve banks
This paper was presented at the conference "Economic Statistics: New Needs for the Twenty-First Century," cosponsored by the Federal Reserve Bank of New York, the Conference on Research in Income and Wealth, and the National Association for Business Economics, July 11, 2002. According to the 1980 Monetary Control Act, the Federal Reserve Banks must establish fees for their priced services to recover all operating costs as well as the imputed costs of capital and taxes that would be incurred by a profit-making firm. Since 2002, the Federal Reserve has made fundamental changes to the ...
Journal Article
Bailouts
Despite the cogent criticism that "bailing out" insolvent firms creates moral hazard, bailouts often occur in the aftermath of bank runs and other financial crises. In an environment where it is economically efficient to make illiquid investments, and where investors have private information regarding their respective liquidity risks, the investment contract must satisfy an incentive constraint. Limited liability tightens this constraint under laissez faire. In principle, government bailouts of insolvent firms might undo this adverse effect of limited liability. A theoretical example is ...
Journal Article
Diamond and Dybvig's classic theory of financial intermediation : what's missing?
The article shows that in a finite-trader version of the Diamond and Dybvig model (1983), the ex ante efficient allocation can be implemented as a unique equilibrium. This is so even in the presence of the sequential service constraint, as emphasized by Wallace (1988), whereby the bank must solve a sequence of maximization problems as depositors contact it at different times. A three-trader example with constant relative risk-aversion utility is used in order to illustrate clearly the requirements that the sequential service constraint imposes on implementation.
Journal Article
Electronic bill presentment and payment--is it just a click away?
This article addresses the following questions about electronic presentment and payment (EBPP) in the business-to-consumer marketplace: Why aren't electronically presented bills always paid electronically? And, if EBPP does aid in the migration to fully electronic end-to-end payment, what are the barriers to its adoption.
Journal Article
On the emergence of parliamentary government: the role of private information
The way many dictators have been deposed in the 20th century resembles the way a parliamentary form of government emerged in 13th-century England. This medieval example is worth examining because the features that led to its political reform are particularly clear. Despite what many think, that reform cannot be understood simply as a shift in military power from ruler to subjects. Rather, understanding the reform requires understanding that the English king had recently acquired private information crucial to his subjects. Such private information became important after England lost Normandy ...
Working Paper
Sharing the risk of settlement failure
Two policies toward payments-system risk are common, but superficially appear to be contradictory. One policy is to restrict the exposure to risk generated by one participant to other participants who are, by one measure or another, directly concerned with the risky participant. The other policy is to provide a ?safety net,? typically provided by government and funded by taxes collected from all participants and even from non-participants, to share losses due to ?systemic risk.? In this paper, we provide a model in which both of these policies can be constituents of an economically efficient ...
Report
Contracts, constraints, and consumption
The paper compares implications of three kinds of models of households? consumption behavior: the basic permanent-income model, several models of liquidity-constrained households, and a model of an informationally-constrained efficient contract. These models are distinguished in terms of implications regarding the present discounted values of net trades to households at various levels of temporary income, and the households? marginal rates of substitution. Martingale consumption is studied as an approximation to the predicted consumption process of the efficient-contract model.