Banking and Interest Rates in Monetary Policy Analysis: A Quantitative Exploration

The paper reconsiders the role of money and banking in monetary policy analysis by including a banking sector and money in an optimizing model otherwise of a standard type. The model is implemented quantitatively, with a calibration based on U.S. data. It is reasonably successful in providing an endogenous explanation for substantial steady-state differentials between the interbank policy rate and (i) the collateralized loan rate, (ii) the uncollateralized loan rate, (iii) the T-bill rate, (iv) the net marginal product of capital, and (v) a pure intertemporal rate. We find a differential of over 3 % pa between (iii) and (iv), thereby contributing to resolution of the equity premium puzzle. Dynamic impulse response functions imply pro-or-counter-cyclical movements in an external finance premium that can be of quantitative significance. In addition, they suggest that a central bank that fails to recognize the distinction between interbank and other short rates could miss its appropriate settings by as much as 4% pa. Also, shocks to banking productivity or collateral effectiveness call for large responses in the policy rate.

Theoretical analysis of the demand of money

The paper summarizes current mainstream views concerning the theory of money demand. A utility maximizing household chooses to hold money because it facilitates transactions, allowing it to economize on shopping time. Two types of implied money demand functions are derived: a “proper” demand function with arguments exogenous to the household and a conventional “portfolio balance” relationship. The historical evolution of ideas pertaining to money demand is reviewed. A final section considers ongoing controversies concerning the role of uncertainty, the use of overlapping generations and cash-in-advance models, and the interpretation of empirical results suggestive of extremely slow portfolio adjustment.Money ; Interest rates

Predicting protein decomposition: the case of aspartic-acid racemization kinetics

The increase in proportion of the non-biological (D-) isomer of aspartic acid (Asp) relative to the L- isomer has been widely used in archaeology and geochemistry as a tool for dating. The method has proved controversial, particularly when used for bones. The non-linear kinetics of Asp racemization have prompted a number of suggestions as to the underlying mechanism(s) and have led to the use of mathe- matical transformations which linearize the increase in D-Asp with respect to time. Using one example, a suggestion that the initial rapid phase of Asp racemization is due to a contribution from asparagine (Asn), we demonstrate how a simple model of the degradation and racemization of Asn can be used to predict the observed kinetics. A more complex model of peptide bound Asx (Asn+Asp) racemization, which occurs via the formation of a cyclic succinimide (Asu), can be used to correctly predict Asx racemi- zation kinetics in proteins at high temperatures (95-140 °C). The model fails to predict racemization kinetics in dentine collagen at 37 °C. The reason for this is that Asu formation is highly conformation dependent and is predicted to occur extremely slowly in triple helical collagen. As conformation strongly in£uences the rate of Asu formation and hence Asx racemization, the use of extrapolation from high temperatures to estimate racemization kinetics of Asx in proteins below their denaturation temperature is called into question. In the case of archaeological bone, we argue that the D:L ratio of Asx re£ects the proportion of non- helical to helical collagen, overlain by the e¡ects of leaching of more soluble (and conformationally unconstrained) peptides. Thus, racemization kinetics in bone are potentially unpredictable, and the proposed use of Asx racemization to estimate the extent of DNA depurination in archaeological bones is challenged

The Central-Bank Balance Sheet as an Instrument of Monetary Policy

While many analyses of monetary policy consider only a target for a short-term nominal interest rate, other dimensions of policy have recently been of greater importance: changes in the supply of bank reserves, changes in the assets acquired by central banks, and changes in the interest rate paid on reserves. We extend a standard New Keynesian model to allow a role for the central bank's balance sheet in equilibrium determination, and consider the connections between these alternative dimensions of policy and traditional interest-rate policy. We distinguish between "quantitative easing" in the strict sense and targeted asset purchases by a central bank, and argue that while the former is likely be ineffective at all times, the latter dimension of policy can be effective when financial markets are sufficiently disrupted. Neither is a perfect substitute for conventional interest-rate policy, but purchases of illiquid assets are particularly likely to improve welfare when the zero lower bound on the policy rate is reached. We also consider optimal policy with regard to the payment of interest on reserves; in our model, this requires that the interest rate on reserves be kept near the target for the policy rate at all times

Options for China in a Dollar Standard World: A Sovereign Currency Approach

This paper examines the fiscal and monetary policy options available to China as a sovereign currency-issuing nation operating in a dollar standard world. We first summarize a number of issues facing China, including the possibility of slower growth, global imbalances, and a number of domestic imbalances. We then analyze current monetary and fiscal policy formation and examine some policy recommendations that have been advanced to deal with current areas of concern. We next outline the sovereign currency approach and use it to analyze those concerns. We conclude with policy recommendations consistent with the policy space open to China

Diversity of Zoanthids (Anthozoa: Hexacorallia) on Hawaiian Seamounts: Description of the Hawaiian Gold Coral and Additional Zoanthids

The Hawaiian gold coral has a history of exploitation from the deep slopes and seamounts of the Hawaiian Islands as one of the precious corals commercialised in the jewellery industry. Due to its peculiar characteristic of building a scleroproteic skeleton, this zoanthid has been referred as Gerardia sp. (a junior synonym of Savalia Nardo, 1844) but never formally described or examined by taxonomists despite its commercial interest. While collection of Hawaiian gold coral is now regulated, globally seamounts habitats are increasingly threatened by a variety of anthropogenic impacts. However, impact assessment studies and conservation measures cannot be taken without consistent knowledge of the biodiversity of such environments. Recently, multiple samples of octocoral-associated zoanthids were collected from the deep slopes of the islands and seamounts of the Hawaiian Archipelago. The molecular and morphological examination of these zoanthids revealed the presence of at least five different species including the gold coral. Among these only the gold coral appeared to create its own skeleton, two other species are simply using the octocoral as substrate, and the situation is not clear for the final two species. Phylogenetically, all these species appear related to zoanthids of the genus Savalia as well as to the octocoral-associated zoanthid Corallizoanthus tsukaharai, suggesting a common ancestor to all octocoral-associated zoanthids. The diversity of zoanthids described or observed during this study is comparable to levels of diversity found in shallow water tropical coral reefs. Such unexpected species diversity is symptomatic of the lack of biological exploration and taxonomic studies of the diversity of seamount hexacorals

The Crisis of Finance-Dominated Capitalism in the Euro Area, Deficiencies in the Economic Policy Architecture, and Deflationary Stagnation Policies

* For a more detailed elaboration on the macroeconomic theory of finance-dominated capitalism, see the respective chapters in my book The Macroeconomics of Finance-dominated Capitalism – and Its Crisis (Hein 2012a). The present paper is based on this theory, and it extends and updates the analysis of the euro crisis I have presented in Hein (2012b). I would like to thank Achim Truger for his helpful comments and Matthias Mundt for his valuable research assistance. The Levy Economics Institute Working Paper Collection presents research in progress by Levy Institute scholars and conference participants. The purpose of the series is to disseminate ideas to and elicit comments from academics and professionals. Levy Economics Institute of Bard College, founded in 1986, is a nonprofit, nonpartisan, independently funded research organization devoted to public service. Through scholarship and economic research it generates viable, effective public policy responses to important economic problems that profoundly affect the quality of life in the United States and abroad