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Journal Article
The practice of central banking in other industrialized countries
Central banks in larger industrialized countries increasingly favor market operations, the buying and selling of securities, over standing facilities, such as lending and deposit facilities, in conducting their monetary policies. In their market operations, foreign central banks most commonly trade securities issued or guaranteed by their governments and repurchase agreements that are backed by a variety of assets, including private securities and securities denominated in foreign currencies. Some also trade in securities that are issued by other governments or private securities that are ...
Discussion Paper
The taxation of equity, dividends, and stock prices
The Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) essentially halved the tax rate on dividends and reduced the top tax rate on capital gains. This paper explores the likely effect of JGTRRA on the composition of returns on corporations? common stock. Both larger corporations? past behavior and theory suggest that the recent tax cuts are not likely to increase dividend payouts significantly. Instead, in the short run, dividends will continue to rise in the customary way in response to the recovery in earnings. In the longer run, the tax cuts will principally reduce companies? ...
Journal Article
The performance of traditional macroeconomic models of businesses' investment spending
The rate of capital formation by businesses has long been among the most closely watched elements of the national accounts. During the last decade, this component of investment attracted considerable interest as capital spending helped support our uncommonly high rate of economic growth. Not only did this spending lift the growth of aggregate demand, it also increased our capacity for supplying goods and services, which in turn could allow output to continue growing rapidly in the future. ; This article analyzes the performance of conventional models of investment spending by comparing their ...
Working Paper
Tobin's Q, economic rents, and the optimal stock of capital
Within optimal investment programs, the accumulation of capital is a stable function of marginal q. Much of the interest in q, however, derives from its potential to reflect the demand for capital when the optimal program changes. If the marginal return on capital diminishes as capital increases, the correspondence between marginal q and the optimal stock of capital can shift whenever investors alter their assessments of prospective economic rents. At such times, marginal q even could rise as the optimal stock of capital falls. In general, robust investment functions express optimal ...
Journal Article
Are stocks overvalued?
By most standards, the price of equities in the United States has risen remarkably rapidly during the last 15 years. Since 1994 alone, the Standard & Poor's index of 500 stock prices has doubled. Although the rapid growth of corporations' profits has propelled the price of their stock, shareholders also are willing to pay a greater price per dollar of their companies' profits, and the valuation of corporations' earnings is now nearly as high as it has been since World War II. For the moment, the value of equity may rest on the growth of earnings, but in the longer run the price of stocks ...
Journal Article
Safety and soundness of financial intermediaries: capital requirements, deposit insurance, and monetary policy
More than two-thirds of the $25 trillion of financial assets held in the United States is managed on behalf of investors by financial intermediaries, ranging from trusts, mutual funds, and mortgage pools to insurance companies, pension funds, and banks. Because of their importance, governments have long regulated the activities of these intermediaries to ensure sound financial markets, a foundation of secure economic development. Currently, regulators both here and abroad are considering reforms that not only might foster more efficient domestic financial markets, but also might prepare the ...
Conference Paper
Tax reform and capital formation