The real effects of reserve requirements : [Version February 1998]

We review arguments for and against reserve requirements and conclude that the main question is whether a distinction between money creation and intermediation can be made. We argue that such a distinction can be made in a money-in-advance economy and show that if the money-in-advance constraint is universally binding then reserve requirements on checkable accounts have no effect on intermediation. We then proceed to show that in a model in which trade is uncertain and sequential, a fractional reserve banking system gives rise to endogenous monetary shocks. These endogenous monetary shocks lead to fluctuations in capacity utilisation and waste. When the moneyin-advance constraint is universally binding, a 100% reserve requirement on checkable accounts can eliminate this waste

www.vanderbilt.edu/econ COSTLY INTERMEDIATION AND THE FRIEDMAN RULE

I examine the implementation of the Friedman rule under the assumption that age dependent lump sum transfers are possible and private intermediation is costly. This is done both in an infinitely lived agents model and in an overlapping generations model. I argue that in addition to a zero nominal-interest-rate policy (the so called Friedman rule) a transfer to young agents, or a government loan program is required for satiating agents with real balances. The paper also contributes to the understanding of Friedman’s original article and discusses related questions about the size of the financial sector. It is shown that the adoption of the (modified) Friedman rule will crowd out private lending and borrowing. I also look at the social value of a market for contingent claims and argue that resources spent on operating a market for accidental nominal bequests are a waste from the social point of view in spite of the fact that individuals have an incentive to trade in such markets

Measuring the Variance-Age Profile of Lifetime Income

This paper presents an operational meaning to the concept of the variance in lifetime income in terms of the discounted variance of T mutually uncorrelated, sequentially realized, random variables. It is then shown how the logical implications of the lifecycle consumption model can be used to estimate this series of variances, called the variance-age profile of lifetime income, and we refer to an earlier paper by Eden (1977) to show how this variance-age profile can be used to compare the riskiness of alternative labor income paths. Finally the estimation technique is applied to Israeli data in order to compare the riskiness of the earnings path of those who attended college with that of those who terminated their education at the high school level in that economy, and to consider data requirements and estimation problems in greater depth.

Rigid prices: evidence from U.S. scanner data

This paper uses over two years of weekly scanner data from two small US cities to characterize time and state dependence of grocers' pricing decisions. In these data, the probability of a nominal adjustment declines with the time since the last price change. This reflects differences over time in the flexibility of prices charged by a single store for a given good. We also detect state dependence: The probability of a nominal adjustment is highest when a store's price substantially differs from the average of other stores. However, extreme prices typically reflect the selling store's recent nominal adjustments rather than changes in other stores' prices.Prices

Southern African summer-rainfall variability, and its teleconnections, on interannual to interdecadal timescales in CMIP5 models

23 pagesInternational audienceThis study provides the first assessment of CMIP5 model performances in simulating southern Africa (SA) rainfall variability in austral summer (Nov–Feb), and its teleconnections with large-scale climate variability at different timescales. Observed SA rainfall varies at three major timescales: interannual (2–8 years), quasi-decadal (8–13 years; QDV) and interdecadal (15–28 years; IDV). These rainfall fluctuations are, respectively, associated with El Niño Southern Oscillation (ENSO), the Interdecadal Pacific Oscillation (IPO) and the Pacific Decadal Oscillation (PDO), interacting with climate anomalies in the South Atlantic and South Indian Ocean. CMIP5 models produce their own variability, but perform better in simulating interannual rainfall variability, while QDV and IDV are largely underestimated. These limitations can be partly explained by spatial shifts in core regions of SA rainfall variability in the models. Most models reproduce the impact of La Niña on rainfall at the interannual scale in SA, in spite of limitations in the representation of ENSO. Realistic links between negative IPO are found in some models at the QDV scale, but very poor performances are found at the IDV scale. Strong limitations, i.e. loss or reversal of these teleconnections, are also noted in some simulations. Such model errors, however, do not systematically impact the skill of simulated rainfall variability. This is because biased SST variability in the South Atlantic and South Indian Oceans strongly impact model skills by modulating the impact of Pacific modes of variability. Using probabilistic multi-scale clustering, model uncertainties in SST variability are primarily driven by differences from one model to another, or comparable models (sharing similar physics), at the global scale. At the regional scale, i.e. SA rainfall variability and associated teleconnections, while differences in model physics remain a large source of uncertainty, the contribution of internal climate variability is increasing. This is particularly true at the QDV and IDV scales, where the individual simulations from the same model tend to differentiate, and the sampling error increase