Financial Structure and Aggregate Economic Activity: An Overview

This paper surveys literature which explores the possible links between the financial system and aggregate economic behavior. The survey is in two parts: The first reviews the traditional work and the second discusses new research.

Banking in General Equilibrium

This paper attempts to provide a step towards understanding the role of financial intermediaries ("banks") in aggregate economic activity. We first develop a model of the intermediary sector which is highly simplified, but rich enough to motivate several special features of bauks. Of particular importance in our model is the assumption that banks are more efficient than the public in evaluating and auditing certain information --intensive loan projects. Banks are also assumed to have private information about their investments, which motivates the heavy reliance of banks on debt rather than equity finance and their need for buffer stock capital. We embed this intermediary sector in a general equilibrium framework, which includes consumers and a non-banking investment sector. Mainly because banks have superior access to some investments, factors affecting the size or efficiency of banking will also have an impact on the aggregate economy. Among the factors affecting intermediation, we show, are the adequacy of bank capital, the riskiness of bank investments, and the costs of bank monitoring. We also show that our model is potentially useful for understanding the macroeconomic effects of phenomena such as financial crises, disintermediation, banking regulation, and certain types of monetary policy.

Taxation, Corporate Capital Structure, and Financial Distress

Is corporate leverage excessive? Is the tax code distorting corporate capital structure decisions in a way that increases the possibility of an economic crisis owing to "financial instability"? Answering these kinds of questions first requires some precision in terminology. In this paper, we describe the cases for and against the trend toward high leverage, and evaluate the role played by taxation. While provision of proper incentives to managers may in part underlie the trend to the debt, high leverage may in practice be a blunt way to address the problem, and one which opens up the possibility for undue exposure to the risks of financial distress. Our story takes as given the kinds of managerial incentive problems deemed important by advocates of leverage. We maintain, however, that when a firm is subject to business-cycle risk as well as individual risk, a profit maximizing arrangement is not simple debt, but rather a contract with mixed debt and equity features. That is, the contract should index the principal obligation to aggregate and/or industry-level economic conditions. We argue that the tax system encourages corporations to absorb more business cycle risk than they would otherwise. It does so in two respects: First, it provides a relative subsidy to debt finance; second, it restricts debt for tax purposes from indexing the principal to common disturbances. At a deeper level, the issue hinges on the institutional aspects of debt renegotiation. If renegotiation were costless, then debt implicitly would have the equity features relevant for responding to business-cycle risk. However, because of the diffuse ownership pattern of much of the newly issued debt and also because of certain legal restrictions, renegotiation is likely to be a costly activity.

Enabled plays key roles in embryonic epithelial morphogenesis in Drosophila

Studies in cultured cells and in vitro have identified many actin regulators and begun to define their mechanisms of action. Among these are Enabled (Ena)/VASP proteins, anti-Capping proteins that influence fibroblast migration, growth cone motility, and keratinocyte cell adhesion in vitro. However, partially redundant family members in mammals and maternal Ena contribution i

Cell Proliferation in the Presence of Telomerase

BACKGROUND: Telomerase, which is active early in development and later in stem and germline cells, is also active in the majority of human cancers. One of the known functions of telomerase is to extend the ends of linear chromosomes, countering their gradual shortening at each cell division due to the end replication problem and postreplication processing. Telomerase concentration levels vary between different cell types as well as between different tumors. In addition variable telomerase concentrations will exist in different cells in the same tumor when telomerase inhibitors are used, because of limitations of drug delivery in tissue. Telomerase extends short telomeres more frequently than long telomeres and the relation between the extension frequency and the telomere length is nonlinear. METHODOLOGY/PRINCIPAL FINDINGS: Here, the biological data of the nonlinear telomerase-telomere dynamics is incorporated in a mathematical theory to relate the proliferative potential of a cell to the telomerase concentration in that cell. The main result of the paper is that the proliferative capacity of a cell grows exponentially with the telomerase concentration. CONCLUSIONS/SIGNIFICANCE: The theory presented here suggests that long term telomerase inhibition in every cancer progenitor or cancer stem cell is needed for successful telomere targeted cancer treatment. This theory also can be used to plan and assess the results of clinical trials targeting telomerase

Re-Imagining School Feeding : A High-Return Investment in Human Capital and Local Economies

Analysis shows that a quality education, combined with a guaranteed package of health and nutrition interventions at school, such as school feeding, can contribute to child and adolescent development and build human capital. School feeding programs can help get children into school and help them stay there, increasing enrollment and reducing absenteeism. Once children are in the classroom, these programs can contribute to their learning by avoiding hunger and enhancing cognitive abilities. The benefits are especially great for the poorest and most disadvantaged children. As highlighted in the World Bank’s 2018 World Development Report (World Bank 2018), countries need to prioritize learning, not just schooling. Children must be healthy, not hungry, if they are to match learning opportunities with the ability to learn. In the most vulnerable communities, nutrition-sensitive school meals can offer children a regular source of nutrients that are essential for their mental and physical development. And for the growing number of countries with a “double burden” of undernutrition and emerging obesity problems, well-designed school meals can help set children on the path toward more healthy diets. In Latin America, for example, where there is a growing burden of noncommunicable diseases (NCDs), school feeding programs are a key intervention in reducing undernutrition and promoting healthy diet choices. Mexico’s experience reducing sugary beverages in school cafeterias, for example, was found to be beneficial in advancing a healthy lifestyle. A large trial of school-based interventions in China also found that nutritional or physical activity interventions alone are not as effective as a joint program that combines nutritional and educational interventions. In poor communities, economic benefits from school feeding programs are also evident—reducing poverty by boosting income for households and communities as a whole. For families, the value of meals in school is equivalent to about 10 percent of a household’s income. For families with several children, that can mean substantial savings. As a result, school feeding programs are often part of social safety nets in poor countries, and they can be a stable way to reliably target pro-poor investments into communities, as well as a system that can be scaled up rapidly to respond to crises. There are also direct economic benefits for smallholder farmers in the community. Buying local food creates stable markets, boosting local agriculture, impacting rural transformation, and strengthening local food systems. In Brazil, for example, 30 percent of all purchases for school feeding come from smallholder agriculture (Drake and others 2016). These farmers are oftentimes parents with schoolchildren, helping them break intergenerational cycles of hunger and poverty. Notably, benefits to households and communities offer important synergies. The economic growth in poor communities helps provide stability and better-quality education and health systems that promote human capital. At the same time, children and adolescents grow up to enjoy better employment and social opportunities as their communities grow