The banking industry in Jordan

This paper examines the structure and performance of the banking industry in Jordan during the period 2000–2006. The Jordanian banking industry is free of extensive state ownership and government direction of the economy. These positive features are reflected by the absence of dominant state-owned banks and by the limited use of directed credit programs, interest rate controls, and credit ceilings. The banking industry is well developed, with bank assets representing 239.80 percent of the GDP at the end of 2006, which is a high percentage compared with other developing countries in the region.     

SUPPLY SHOCKS AND THE INTEREST RATE

The classic example of a temporary supply shock is a failed agricultural harvest. Theoretically, adverse temporary supply shocks are predicted to raise the ex ante real interest rate; that is, a below-normal harvest raises the interest rate. Apparently, however, no one has tested this conclusion using agriculture as the supply shock. This paper examines nineteenth century French data and confirms the hypothesis that deviations from the "average" harvest have an inverse effect on the interest rate. It also finds that temporary fluctuations in government spending affect the interest rate: higher than normal government spending raises the interest rate.     

COSTLY INTERMEDIATION AND CONSUMPTION SMOOTHING

This paper studies quantitatively how intermediation costs affect household consumption loans and welfare. Agents face uninsurable idiosyncratic shocks to labor productivity in a production economy with costly financial intermediation and a borrowing limit. Reducing intermediation costs has two effects: (1) For a given decrease in the interest rate on borrowing, agents' ability to smooth consumption over time improves. (2) The demand for loans increases, which increases the interest rate. The net welfare gain of reducing intermediation costs from 3.927% (U.S. level) to 1% is about 1.14% of equivalent consumption in the baseline economy for an endogenous interest rate and 1.90% for an exogenous interest rate. The gains are distributed unevenly: households at the bottom wealth decile improve welfare by 3.96% and 5.86% of equivalent consumption, while those at the top decile have welfare gains of 0.35% and 0.2%, respectively. Sufficiently high intermediation costs eliminate borrowing and hence the welfare gain of reducing costs is not substantial. The welfare analysis includes transitional dynamics between steady states. (JEL D91, E60, G38)     

LONGEVITY AND PUBLIC OLD-AGE PENSIONS

Using an overlapping generations model with endogenous but uncertain longevity, this article analyzes the effects of public old-age pensions on longevity choice and capital accumulation. When agents are not altruistic, increases in old-age pensions are longevity-neutral for golden rule economies and longevity-decreasing if interest rates exceed population growth, and saving effects are strictly negative. When agents are altruistic, longevity is independent of old-age pensions regardless of the interest rate–population growth relation. On the other hand, the longevity effect of a price subsidy on longevity extending expenditures or an advance in longevity extending technology is positive.(JEL H5 , J1 )     

Indigenous land rights and dynamics of the land market in Kuala Lumpur, Malaysia

This paper raises a number of important issues relating to legal and economic development concepts. It concentrates on the supply constraints affecting land development decisions of both private and public landowners in releasing land for development purposes. With reference to the indigenous land rights in Kuala Lumpur, this paper focuses on the restrictions in interest, which may limit the land from being transferred in the open market. With a limited market, the indigenous land achieves a lower value in the market place because transactions are limited within a particular group of people only. As a result, the market forces are restricted and the land development process for urban regeneration often comes to a halt. In examining the role of the indigenous land market in the redevelopment process of Kuala Lumpur, the study uses an institutional analysis to show the way in which these restrictions in interest affect landowners’ decisions and, thus, restrict the supply of land to real estate redevelopment. In conclusion, the paper shows various causes for land supply constraints and ways to improve these with the aim to undertake urban redevelopment initiatives considering pressure for more land in the market.     

THE EFFECT OF FISCAL POLICY ON THE SHORT-RUN RELATION BETWEEN NOMINAL INTEREST RATES AND INFLATION

This paper presents a simple empirical model of the relation between the inflation rate and the nominal interest rate. We show that previous results found in the literature may be attributed to specification error and that there are natural explanations for the observed signs of previous Fisher equation estimates. Our results show that fiscal policy shocks may generate short run negative correlations between changes in inflation and changes in the nominal interest rates. These results illustrate the difficulty in discussing the relation between inflation and nominal interest rates without conditioning the analysis with specific assumptions on the course of the economy.     

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.     

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 )     

MANAGING RISK TAKING WITH INTEREST RATE POLICY AND MACROPRUDENTIAL REGULATIONS

We develop a model in which a financial intermediary's investment in risky assets—risk taking—is excessive due to limited liability and deposit insurance, and characterize the policies that implement efficient risk taking. In the calibrated model, combining interest rate policy with state‐contingent macroprudential regulations—either capital or leverage regulation, and a tax on profits—achieves efficiency. Interest rate policy mitigates excessive risk taking by altering the return and the supply of collateralizable safe assets. In contrast to commonly used capital regulation, leverage regulation has stronger effects on risk taking and calls for higher interest rates. (JEL E44, E52, G11, G18)     

TAX EFFECTS, PRICE EXPECTATIONS AND THE NOMINAL RATE OF INTEREST

This paper investigates the relationship between price expectations, income taxes and the nominal rate of interest in Canada. Our primary approach was to utilize the rational expectations hypothesis to create a synthetic price expectations series and to apply this series to four models of the determination of the nominal rate of interest; the Yohe-Karnovsky model, the Carr-Smith model, the Feldstein-Eckstein model and the Jenkins-Lim model. The analysis is inconclusive with respect to the Darby hypothesis that income tax considerations will cause the nominal rate of interest to increase by more than the increase in the expected rate of inflation.     

EXPECTED INFLATION AND INTEREST RATES

While there may have been a Darby-Feldstein effect in the 1960's (interest rates rising by more than expected inflation because of tax considerations), the relationship is so variable that it more likely reflects changing investor confidence in the expected returns to capital assets. In addition, the degree of capacity utilization appears to have a strong influence on short-term interest rates, and there is a statistically significant but quantitatively small liquidity effect from changes in the growth rate of money.     

SELF-INTEREST AND PUBLIC OPINION TOWARD SMOKING POLICIES; A REPLICATION AND EXTENSION

Numerous studies report that self-interest has a non significantinfluence upon various political and social attitudes. In contrast,a recent article by Green and Gerken (1989) reports a Californiastudy showing that cigarette smokers are significantly moreopposed than nonsmokers to public smoking restrictions and tobaccosales tax increases. The present article replicates and extendsthis analysis with data from two different states—Illinois(in 1984, N=458)—and North Carolina (in 1985, N=488)—andusing analysis techniques that differ from and expand upon theCalifornia study. Despite these methodological differ ences,self-interest is again shown to have a significant influenceon opinions concerning public smoking restrictions and taxation,as well as on several additional issues relating to smokingand tobacco.     

RISK, TRANSACTIONS CHARGES, AND THE MARKET FOR FOREIGN EXCHANGE SERVICES

This paper suggests that transactions charges in foreign exchange markets, rather than being solely brokerage fees, represent exchange rate uncertainty in periods of great fluctuations by including remuneration for the assumption of risk by foreign exchange dealers. Since most of the cost of exchange rate uncertainty may be largely endogenously included in the foreign exchange markets, attempts to examine the efficient market hypothesis in these markets should most appropriately include specific consideration of transactions costs. There appears to be empirical support for the premise that transactions charges are positively related to exchange rate risk, and, as well, inclusion of contemporaneous bid-ask spreads into the interest parity schedule leaves few unexplained profits from dollar-pound covered interest arbitrage during the 1970's and underscores the notion of classifying periods by degree of turbulence in analyzing covered interest arbitrage.     

CAN MONETARY POLICY INFLUENCE LONG‐TERM INTEREST RATES? IT DEPENDS

Can monetary policy influence long‐term interest rates? Studies that have tackled this question using vector autoregressions (VARs) generally find that monetary policy's influence on long‐term interest rates is small and often statistically insignificant. Other studies, however, using a single‐equation approach, have found a robust relationship. Our study sheds new light on this question by estimating the effect of monetary policy shocks on long‐term interest rates in a VAR with long‐run monetary neutrality restrictions. We find that U.S. monetary policy can strongly influence long‐term interest rates, but only when the Federal Reserve has inflation‐fighting credibility and is able to firmly anchor inflationary expectations. (JEL E43, E51, E52)     

STOCK PRICE EFFECTS OF PERMANENT AND TRANSITORY SHOCKS

This paper exploits the long-run equilibrium relationship between stock prices and dividends, implied by the present value model, to structurally identify a dynamic model that governs the behavior of stock prices. The innovations to the data are dichotomized into those that leave a permanent imprint on both series and those that have only transitory effects. Unlike previous studies, however, we do not impose arbitrary identifying restrictions to decompose the joint process, restrictions that may not be consistent the data. ( JEL C12, C32, E24)     

SOUTH AFRICA'S PRESS RESTRICTIONS EFFECTS ON PRESS COVERAGE AND PUBLIC OPINION TOWARD SOUTH AFRICA

The 2 November 1985 ban on photographic and sound recordingsby the South African government provided an opportunity to investigatehypotheses concerning the effect of the ban on U.S. media coverageof South Africa and on public opinion toward South Africa. Wehypothesized that the ban would result in (1) a decrease incoverage of protest-related stories, (2) a tapering off of thevolume of coverage, and (3) a decline in the prominence of theSouth Africa story. We further hypothesized that (4) all ofthese effects would be stronger for broadcast than for printmedia, that (5) if the press ban reduced coverage of eventsin South Africa, there would be less attentiveness to the SouthAfrican problem among the general public in the United States,and that (6) sympathy for the black population would decreaseas a result of the press restrictions. We found that the press restrictions did not have the effectspredicted, either on press coverage or on United States publicopinion. Relative to levels of political violence in South Africa,coverage levels did decline. However, the decline did not occurabruptly in November, but appeared as a continuation of decreasesthat had already begun in September, prior to the press restrictions.     

THE STATE'S INTEREST SEEKING AND ECONOMIC STAGNATION IN THE THIRD WORLD:

In the development literature, the state's interest seeking is considered a crucial determinant of economic stagnation in the Third World. The internality inefficiency, opportunity costs, and structural disincentives generated by such a state constitute the key mechanisms responsible for slow growth. This study provides a major quantitative test of this hypothesis. A sectoral approach is proposed to measure the interest seeking of the state by using the central government expenditures for state employees' wages and salaries as an indicator. As the analysis of pooled data from fifty-five less-developed countries reveals, high expenditures on salaries impeded the GDP growth rate in 1970–1990. In response to the argument that the African economy is more vulnerable to state predation, this regional effect hypothesis is further tested with an interaction model. The results reveal that the harmful growth effect of the state's interest seeking cuts across varied regions and can be generalized.     

The time-varying performance of the long-run demand for money in the United States

This article investigates the issues of the stability and predictability and interest-sensitivity of money demand over 1870–1997. Two different estimation methodologies are used - random coefficient (RC) modeling and vector error correction (VEC) modeling. The former procedure allows the profiles of the coefficients to be traced over time and relaxes several restrictions routinely imposed in applied work. The results indicate that different estimation methodologies using different data periods and frequencies yield estimates of some of the coefficients of the long-run demand for money that fall within a fairly narrow range. The results also suggest that specification errors have had an important influence on the time profile of the interest elasticity of money demand and that there is a tendency for the interest elasticity to decline in absolute value as interest rates decline.     

MACROECONOMIC STABILITY AND THE SHORT RUN FEDERAL RESERVE REACTION FUNCTION, 1969–1979

This paper examines the dynamic stability of a situation in which monetary policy is implemented by means of short-run control of interest rates. Using a simple dynamic model it is shown that such procedures may lead to instability unless the central bank allows the controlled interest rate to adjust sufficiently to economic developments. The theoretical model is then used to guide an empirical examination and evaluation of Federal Reserve behavior for the period 1969–1979. Evidence is presented that on average over this period the Federal Reserve's control of the Federal funds rate could have been a destabilizing factor.     

Between the Public and the State: The Shipping Lobby's Strategies against US Immigration Restrictions 1882–1917

Based on Freeman's model of interest group‐driven migration policies, the article gives a qualitative inside look on a neglected actor during the formative years of US immigration reform. It analyzes the central role of the shipping companies in coordinating the pro‐immigration campaign with and against other interest groups. Their lobbying is divided into two complementary sections: inside top‐down efforts (lobbyists) to influence legislators and outside bottom‐up efforts (migrant communities and the press) to mobilize the public. It assesses the importance of public opinion in their lobby campaigns and the shipping companies’ success in delaying far‐reaching restrictions until 1917.