BANK COMPETITION AND CONSUMER SEARCH OVER CREDIT CARD INTEREST RATES

This article models bank competition facing consumers with different search incentives and finds that consumers with higher credit card balances have lower interest rates given their risk class due to their greater search effort. It also finds that a default history leads to higher interest rates. The equilibrium interest rate corresponding to risk type and motive (borrowing versus convenience/transactions) is derived theoretically, and the determinants of the interest rate are estimated using an original data set. Endogeneity of default is handled with a two-equation system.(JEL D14 , D12 , D11 )     

对我国利率市场化改革的思考

利率市场化是过去几年、并将是未来一段时期我国金融市场发展的主线之一。所谓利率市场化,就是建立起以供求为基础的利率市场化决定机制,进而引导金融资源合理配置。我国利率市场化改革是一个逐步实现并不断完善的过程。不同程度的利率市场化,其要求的条件并不完全相同。利率市场化越深入,其对配套改革的要求就越严格。利率市场化的条件实现,既是资金市场运行环境的真实转变,也是伴随利率市场化逐步成熟完善的过程。     

ANIMAL SPIRITS,HETEROGENEOUS EXPECTATIONS,AND THE AMPLIFICATION AND DURATION OF CRISES

We introduce a simple equilibrium model of a market for loans, where households lend to firms based on heterogeneous expectations about their loan default probability. Agents select endogenously among heterogeneous expectation rules, based upon their relative performance. Due to strong nonlinearities, a small fraction of pessimistic traders already has a large aggregate effect, leading to a crisis characterized by high interest rates for loans and low output. Our stylized model illustrates how animal spirits and heterogeneous expectations and, in particular, how coordination on pessimistic expectations amplifies crises and slows down recovery. (JEL E32, D83, D84)     

Consumer bankruptcy and default: The role of individual social capital

In this paper, we empirically assess the role of individual social capital on personal bankruptcy and default outcomes in the consumer credit market. After controlling for a borrower’s risk score, debt, income, wealth, and legal and economic environments, we find that default/bankruptcy risk rises and then falls over the lifecycle, while a borrower who owns a home or is married has a lower risk of default/bankruptcy. Moreover, a borrower who migrates 190 miles from his “state of birth” is 17% more likely to default and 15% more likely to file for bankruptcy, while a borrower who continues to live in his state of birth is 14% and 10% less likely to default and file for bankruptcy, respectively. A borrower who moves to a rural area is 9% and 7% less likely to default and declare bankruptcy, respectively. We also find that measures of social networks, norms, and cooperation and trust (i.e., aggregate social capital) are inversely related to consumer bankruptcy.     

A RESPECIFIED TAX-ADJUSTED FISHER RELATION

How much will a 1% increase in expected inflation increase nominal interest rates? Irving Fisher's famous equation implies that nominal interest rates will rise in proportion to an increase in expected inflation. Darby and Feldstein, correcting the Fisher equation for taxation, predict a nominal interest rate increase of [1/(1 - T)]% where T is the marginal tax rate: i.e., if T =3, then a 1 % increase in expected inflation should cause a 1.4 % rise in interest rates. Empirical evidence, however, suggests that the rise in interest rates is much smaller than the Darby/Feldstein prediction. Estimates are around 9, varying mostly between 5 and 1.15, which is much closer to Fisher's original prediction. It is important to know the size of the interest rate response to inflation expectations in a world in which inflation and interest rates are volatile and in which tax laws are designed to influence savings and investment through interest rates. In this paper we attempt to close the gap between theorized and estimated effects of inflation by incorporating into the Fisher equation two important aspects of the U.S. tax code: historic cost depreciation and the lower tax rate on capital gains. Our model shows that the effect of expected inflation on interest rates is dampened by the lower benefits from depreciation deductions arid the capital gains tax. Our corrected Fisher equation predicts a 1.12 % nominal interest rate increase, rather than the 1.4 % increase implied by the Darby/Feldstein model. The, our model closes about 56 % of the gap between theory and empirical evidence. The remainder could be closed by additional refinements in the model or better empirical modeling.     

Loan performance and race

Recent studies find evidence of racial discrimination in mortgage markets. Although these studies explore loan approval rates for whites versus minorities, they do not specifically consider loan performance, either in the form of default rates or loan administration costs. This study considers discrimination in the used car credit market, where the collateral is not subject to location externalities, collateral value and quality do not vary as much as in real estate, and the loan terms are shorter. We find administration costs and default rates are higher for minorities than for whites, controlling for age, income, home ownership, wealth, occupation, loan terms, and geographic location.     

THE FINANCIAL AND TAX EFFECTS OF MONETARY POLICY ON INTEREST RATES

Standard analysis of monetary policy effects on interest rates in terms of liquidity, income, and expectations effects is incomplete. After a change in monetary policy, substitution among securities will increase as time elapses and so reduce or eliminate financial effects caused by short-run financial market segmentation. Also, the standard expectations effect omits the transfer of income tax liability on that part of the interest payment representing a return of real capital. So a 1 percentage point increase in the expected inflation rate should increase the nominal interest rate by 1/(1 —τ) percentage points, τ being the marginal tax rate.     

ESTIMATION OF THE DEPRECIATION RATE OF PHYSICAL AND R&D CAPITAL IN THE U.S. TOTAL MANUFACTURING SECTOR

Numerous studies on production and cost, the sources of productivity, and endogenous growth have recognized the pivotal role played by physical and R&D capital stocks. Analysis of the contributions of these capitals often requires measures of the stocks of physical and R&D capital, which in turn requires measuring their depreciation rates. In this paper we specify a model of factor demand that allows us to estimate the depreciation rates of both physical and R&D capital jointly with other model parameters. The model is estimated for the U.S. total manufacturing sector.     

EQUILIBRIUM PATTERNS OF COMPETITION IN OCS LEASE SALES

An equilibrium model of bidding behavior is developed that accounts for observed fluctuations in the degree of competition to acquire offshore petroleum leases. As one might expect, such fluctuations are related to the heterogeneity of geological prospects that are offered for sale, with a relatively high degree of competition to acquire tracts of the highest quality. The equilibrium configuration of bids is also shown to reflect structural characteristics, such as capital market constraints, that may restrict competition in the lease auction. Empirical evidence is presented which tends to confirm our general theory of bidding equilibria, but which contradicts the popular notion that capital constraints have restricted competition in OCS lease sales. Policy implications are discussed in the concluding section.     

INTEREST RATE CEILINGS AND THE ROLE OF SECURITY AND COLLECTION REMEDIES IN LOAN CONTRACTS

Collateral or other security for personal loans and restrictions on creditor remedies for the collection of debts have varying effects on the price and quantity of credit which depend in turn on the level of interest rate ceilings. We report here on reduced-form equations of a supply-demand model estimated for five states with different interest rate restrictions. Interest rate ceilings limit how far lenders can raise loan rates to compensate for expected default losses but restrictions on collection remedies are generally associated with a higher interest rate.     

AGGREGATE DEMAND AND INTEREST RATES: A MACROECONOMIC APPROACH TO THE TERM STRUCTURE

This paper develops a model in which the term-structure of interest rates obtains as an equilibrium outcome of the interactions of firms, households and rationally informed speculators. Exogenous disturbances whose impact effects fall only in the market for short-term bonds generate equilibrium movements in the yield on long-term bonds and the level of investment spending. In the case of risk-averse speculators, a purely transitory, unanticipated shock to the money supply generates a long distributed-lag effect on the level of aggregate demand.     

THE USE OF COLLATERAL TO ENFORCE DEBT CONTRACTS

This paper analyzes the enforcement of debt contracts by treating the adherence to a contract as a matter of choice. Many commonly observed features of debt contracts, including the widespread use of collateral, are shown to be market responses to the costs of enforcing contracts. The characteristics of the collateral asset, including its marketability and expectations regarding its future price are shown to have important effects on the payments schedule of the debt. Since default is treated as a choice variable I am able to demonstrate the effects of macroeconomic fluctuations on default rates and lending decisions. Thus the analysis provides a basis for modeling the multiplier phenomena associated with the collapse of lending markets during severe depressions.     

THE REACTION OF INTEREST RATES TO UNANTICIPATED FEDERAL RESERVE ACTIONS AND STATEMENTS: IMPLICATIONS FOR THE MONEY ANNOUNCEMENT CONTROVERSY

This paper examines the reaction of long- and short-term interest rates to monetary policy surprises that influenced market expectations of the future behavior of the federal funds rate in the period after October 1979. We find that the relative reaction of long- and short-term rates to policy surprises is similar to the relative reaction of these rates to money announcements. Consequently, we conclude that the large reaction of long-term interest rates to money announcements in the period after October 1979 is consistent with the "policy anticipations hypothesis" which views this reaction as a movement in real interest rates.     

Foreclosure,Inequality, and the Difference That Place Makes

While the Great Recession and the associated rise in foreclosures significantly impacted households across the United States, default rates in rural areas and rural‐urban foreclosure differences have failed to attract substantial research attention. To expand the scale and scope of the foreclosure literature, this article examines place‐based differences in estimated foreclosure rates across U.S. counties, which are classified as urban, suburban, micropolitan, or rural. Defaults are considered both overall and for each county classification, and are related to income distribution and inequality, homeownership, adjudication of default, place‐based factors including amenity scores and proximity to urban areas, and geographic region. The article finds a complex relationship among these variables, with inequality itself negatively associated with default rates and lower‐middle?income households positively related to foreclosure. Further, while proximity to urban areas is positively related to foreclosure rates among nonurban counties, natural amenities are related to lower default rates in these areas. The article concludes by considering policy implications, and recommends expanding foreclosure mitigation and prevention strategies to nonurban places.     

Understanding Investment Irreversibility in General Equilibrium

In general equilibrium, irreversibility affects both the wealth of consumers and the return on assets. As long as the inter-temporal elasticity of substitution is realistically low, irreversibility not only prevents capital destruction, but it also induces capital creation. Furthermore, under certain conditions, irreversibility raises the risk premium by increasing the variability of consumption and market portfolio. These issues are dealt in a simple model of investment irreversibility with multiple types of capital. Its tractability allows for analytical results which explain the contrast between the consequences of irreversibility for individual markets and the consequences of irreversibility for the whole economy.     

Economywide Impact of Maize Export Bans on Agricultural Growth and Household Welfare in Tanzania: A Dynamic Computable General Equilibrium Model Analysis

Export bans have been frequently used by developing countries in recent years in an attempt to ensure domestic food supplies and insulate domestic market prices from international price hikes. This article uses Tanzania to examine the impact of export bans using a computable general equilibrium model. We find that banning cross‐border maize exports has very little effect on the national food price index and that the benefits from lower maize prices are captured primarily by urban households, while maize producer prices decrease significantly. The export ban further decreases the wage rate for low‐skilled labour and the returns to land, while returns to non‐agricultural capital and wage rates for skilled labour increase, further hurting poor rural households and thus increasing poverty for the country as a whole.     

Modes of labor market incorporation and occupational cost among new immigrants to Israel

"The present study contributes to the literature on international migration by examining social, demographic and contextual factors that influence modes of labor market incorporation and occupational cost among new immigrants during their first years after migration. The data for the analysis were obtained from the 1983 Census of Population conducted by Israel's Central Bureau of Statistics. The analysis focuses on men who immigrated to Israel between 1979 to 1983.... The data reveal that the likelihood of finding employment, the mode of labor market incorporation, and the size of the occupational cost are significantly affected by geocultural origin, occupation in the country of origin, and individual-level demographic and human capital resources. The meaning of the differentiated effects are discussed in detail. The findings point toward two central aspects that should be examined in the study of labor market incorporation of new immigrants: employment status and occupational cost."     

FURTHER EVIDENCE ON THE RELATIONSHIP BETWEEN FEDERAL GOVERNMENT DEBT AND INFLATION

Does an increase in the federal debt cause inflation? Dwyer [1982] using a par value measure of debt, finds no support for such a causal link. Cox [1985] using a market value measure, finds evidence that increases in debt produce higher inflation rates. We reconcile these results by demonstrating that failure to capture the interest rate effects inherent in the market value measure accounts for the finding that debt "causes" inflation. Incorporating interest rates into our test equations using the market value series leads us to conclude that, like the par value series results, increases in federal debt do not cause higher rates of inflation.     

DURABILITY, MAINTENANCE AND THE PRICE OF USED ASSETS

This paper considers assets whose service flow decays at a rate determined by built-in durability and the level of maintenance. A cost minimization model determines optimal durability and maintenance and shows how these variables respond to changes in interest rates, the price of maintenance, and the cost of new assets. The price of old assets adjusts so that the cost of services from both old and new assets is the same. The model provides a framework for analyzing data on automobile scrapping rates and repair expenditures. Data for postwar United States show that scrapping rates are sensitive to the price of repairs relative to the price of new cars. The amount of repairs per car also responds to the relative repair price .