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Working Paper
The efficiency of residential mortgage guarantee insurance markets
Mortgage Guarantee Insurance (MGI) provides protection to lenders against default by borrowers who have less than 20 percent equity interest in the mortgaged property. The existence of this form of insurance helps to stimulate home ownership by allowing consumers with less than twenty percent down payment access to credit markets. Initially an invention of lenders, MGI became dominated by government agencies after the Great Depression but recently private insurers have increased their market share to more than 75 percent. The domination of the industry by the private sector appears not to ...
Working Paper
Trade, growth and capital: a case study of Jamaica
This is the first of two articles on the dynamics of the Jamaican economy over the last two and a half decades. It compares the overall macroeconomy of Jamaica in the areas of output, fiscal and monetary policy, capital formation and trade to that of Singapore and South Korea. The conclusion from the aggregate data is that government spending in the second half of the 1970?s and the first half of the 1980?s may have had a significant role in the inflationary episodes and reduced capital formation during this period. The second article will delve deeper into the details of the fiscal and ...
Working Paper
Financial intermediation and economic growth in southern Africa
The role of the financial sector in stimulating economic growth has been debated in the economic profession for decades. The prevailing view is that financial intermediaries reduce the transactions costs of channeling funds from savers to entrepreneurs by reducing information asymmetries between lenders and borrowers, there by stimulating investment and growth. Inflation, on the other hand, increases uncertainty and has a negative impact on investment and reduces growth. This paper tests these two hypotheses empirically using a pooled time series for a cross-section of countries in the ...
Journal Article
What determines long-run growth?
Working Paper
A state space forecasting model with fiscal and monetary control
In this paper we model the U.S. economy parsimoniously in an a theoretic state space representation. We use monthly data for thirteen macroeconomic variables. We treat the federal deficit as a proxy for fiscal policy and the fed funds rate as a proxy for monetary policy and use each of them as control (exogenous) variables, and designate the rest as state variables. The output (measured) variable is the growth rate of quarterly real GDP which we interpolate to obtain a monthly equivalent. We specify a linear relation between state variables and implicitly allow for time variation of the ...
Journal Article
Old wine at new prices
Working Paper
Income inequality and minimum consumption: implications for growth
We propose a model that recognizes hierarchical goods and income inequality among households. The model demonstrates that growth is impacted not by inequality per se, but "absolute" income distribution or the level of poverty underlying the income distribution. Specifically, when a large fraction of the population is below the threshold income necessary for subsistence, aggregate consumption is depressed. In low-income countries, high inequality of income retards consumption growth, whereas in high-income countries inequality may be neutral for growth. Cross-country regressions indicate a ...
Journal Article
Improving production management
Working Paper
Why does inventory investment fluctuate so much during contractions?
Inventory investment appears to have a significant impact on the movement of aggregate output during business cycle contractions. Recent empirical evidence has raised doubts about the often used assumption of a buffer-stock/production-smoothing motivation for inventory. Work by Blinder and Maccini suggests that the use of an (S,s), or intermittent adjustment decision rule, better explains the stylized facts of the dynamics of inventory investment. This has led to the focus on the (S,s) as an alternative to production-smoothing. I assume that some agents use the (S,s) adjustment rule while ...
Journal Article
How closely do banks manage vault cash?
This article examines daily vault cash balances in the Eighth Federal Reserve District to see if banks have been optimizing their vault cash levels. Recent reductions in reserve requirements have not been accompanied by significant reductions in vault cash. This situation suggests that banks may be managing vault cash reserves primarily as precautionary balances to satisfy daily fluctuations in deposits and withdrawals, rather then part of total reserve management. In 1997, some larger banks instituted formal management of vault currency. If this practice spreads, it will have implications ...