Special repo rates: an introduction

Transactions involving repurchase agreements (known as repos and reverses) are important tools the Federal Reserve uses in implementing monetary policy. By undertaking such transactions with primary dealers, the Fed can temporarily increase or decrease the quantity of reserves in the banking system. The focus of this article is the repo market, especially the role the market plays in the financing and hedging activities of primary dealers. The author explains the close relation between the price premium that newly auctioned, or on-the-run, Treasury securities command and the special repo rates on those securities. The author's analysis demonstrates that the rents that can be earned from special repo rates are capitalized into the price of the underlying bond so as to keep the equilibrium rate of return unchanged. ; The discussion begins with a description of repos and reverses, the difference between on-the-run and older securities, and the ways dealers use repos to finance and hedge. The article then examines the difference between general and specific collateral, defines the repo spread and dividend, presents a framework for determining the equilibrium repo spread, and describes the average pattern of overnight repo spreads over the auction cycle. Finally, the article discusses convergence trades and repo squeezes. Two appendixes provide detailed analysis.Repurchase agreements ; Government securities

Consumption and asset prices with recursive preferences: Continuous-time approximations to discrete-time models

This paper presents tractable and efficient numerical solutions to general equilibrium models of asset prices and consumption where the representative agent has recursive preferences. It provides a discrete-time presentation of the approach of Fisher and Gilles (1999), treating continuous-time representations as approximations to discrete-time "truth." First, exact discrete-time solutions are derived, illustrating the following ideas: (i) The price-dividend ratio (such as the wealth-consumption ratio) is a perpetuity (the canonical infinitely lived asset), the value of which is the sum of dividend-denominated bond prices, and (ii) the positivity of the dividend-denominated asymptotic forward rate is necessary and sufficient for the convergence of value function iteration for an important class of models. Next, continuous-time approximations are introduced. By assuming the size of the time step is small, first-order approximations in the step size provide the same analytical flexibility to discrete-time modeling as Ito's lemma provides in continuous time. Moreover, it is shown that differential equations provide an efficient platform for value function iteration. Last, continuous-time normalizations are adopted, providing an efficient solution method for recursive preferences.Asset pricing ; Consumption (Economics) ; Interest rates ; Wealth

Modeling the term structure of interest rates: an introduction

The yield curve, or the term structure of interest rates, plays a central role in the economy. Monetary policy is conducted by targeting rates at the short end of the curve, and longer-term yields reflect expectations of future changes in short rates. ; This article presents a model of the term structure that builds on a simpler model outlined in one of the author’s earlier Economic Review articles. The more complex model presented here takes into account the ongoing uncertainty about an asset’s price over time. The article focuses on modeling the dynamics of the state-price deflator, which depend directly on the interest rate and the price of risk. ; The author guides the reader step by step in developing a model of the term structure in which the interest rate evolves randomly through time according to a simple rule, the price of risk is a fixed parameter, and observations are made at discrete points in time. ; The solution to the model illustrates a number of important features present to one extent or another in essentially all term structure models. The contribution of this article is its exposition: An important feature is that the model keeps track of the length of the discrete time period, allowing one to see what happens as the time step shrinks. The model thus provides a bridge from discrete-time models to continuous-time models without requiring the technical overhead necessary for a direct continuous-time analysis.

Happy hour economics, or how an increase in demand can produce a decrease in price

The standard supply-and-demand model is typically an economist’s most important analytical tool, but in some situations it does not capture the features of interest. For example, during “happy hour,” bars near workplaces sell a higher-than-usual quantity of alcoholic beverages at a lower-than-usual price. This practice makes little sense using the standard competitive model, but an alternative model—the model of monopolistic competition—provides the needed analytic framework. ; This article provides a step-by-step construction of a monopolistic competition model in which many firms each produce the same product, and thus bear the same production costs, as their competitors. Yet each firm’s product is differentiated from its competitors’, resulting in a falling demand curve. ; These seemingly contradictory conditions can be rationalized by assuming the firms are separated in space and that consumers bear costs to travel to the firms. A local firm has some monopoly power because local consumers may be willing to pay a higher price for the convenience of shopping nearby. Conversely, local consumers may be willing to travel farther for a lower price. Firms charging a lower price may also be able to attract faraway consumers who are willing to travel. ; Thus, when consumers’ demand increases, the demand curve facing a local monopolist becomes more sensitive to changes in its own price. This increase in sensitivity in turn can cause the equilibrium price to be lower during periods of high demand.Supply and demand ; Monopolistic competition ; Prices

Characteristics of Billfish Anglers in the U.S. Atlantic Ocean

A mail survey of 1,984 U.S. billfish tournament anglers was completed to examine their fishing activity, attitudes, trip expenditures, consumer's surplus, catch levels, and management preferences. A sample of 1,984 anglers was drawn from billfish tournaments in the western Atlantic Ocean (from Maine to Texas, including Puerto Rico and the U.S. Virgin Islands) during 1989. A response rate of 61% was obtained (excluding nondeliverables). Anglers averaged 13 billfish trips per year, catching a billfish 40% of the time while 89% of billfish caught were released with <1 billfish per year per angler retained. Catch and retention rates varied by region. Expenditures averaged $1,600 per trip, but varied by region. The annual consumer's surplus was$262 per angler, but increased to $448 per angler if billfish populations were to increase. An estimated 7,915 tournament anglers in the U.S. western Atlantic spent$179,425,000 in pursuit of billfish in 1989. Anglers opposed management options that would diminish their ability to catch a billfish, but supported options limiting the number of billfish landed

Retinal vessel segmentation using Gabor Filter and Textons

This paper presents a retinal vessel segmentation method that is inspired by the human visual system and uses a Gabor filter bank. Machine learning is used to optimize the filter parameters for retinal vessel extraction. The filter responses are represented as textons and this allows the corresponding membership functions to be used as the framework for learning vessel and non-vessel classes. Then, vessel texton memberships are used to generate segmentation results. We evaluate our method using the publicly available DRIVE database. It achieves competitive performance (sensitivity=0.7673, specificity=0.9602, accuracy=0.9430) compared to other recently published work. These figures are particularly interesting as our filter bank is quite generic and only includes Gabor responses. Our experimental results also show that the performance, in terms of sensitivity, is superior to other methods

Inflation and monetary regimes

Correlations of inflation with the growth rate of money increase when data are averaged over longer time periods. Correlations of inflation with the growth of money also are higher when high-inflation as well as low-inflation countries are included in the analysis. We show that serial correlation in the underlying inflation rate ties these two observations together and explains them. We present evidence that averaging increases the correlation of inflation and money growth more when the underlying inflation rate has higher serial correlation.

Funded Pensions, Labor Market Participation, and Economic Growth.

This paper analyses a model of overlapping generations in which agents who do not participate in th elabor market are unable to borrow. Thus an increase in a fully funded pension raises aggregate savings even with a fixed participation rate since private savings are not crowded out one-for-one. When labor force participation is determined endogenously, a rise in the level of fully funded pensions increases the aggregate labor supply. This in turn increases aggregate savings and growth, directly by raising per capita savings and indirectly through tax and interest rate effects.

The Healthy Farms, Food and Communities Act: Policy Initiatives for the 2002 Farm Bill And the First Decade of the 21st Century

This policy document includes a legislative initiative to be incorporated into the 2002 Farm Bill, and a broader set of policy principles and legislation endorsed by CFSC. Both policy platforms create the basis for furthering the goals of healthy farms, healthy food, and, ultimately, healthy communities

Convolutional Neural Networks for Counting Fish in Fisheries Surveillance Video

We present a computer vision tool that analyses video from a CCTV system installed on fishing trawlers to monitor discarded fish catch. The system aims to support expert observers who review the footage and verify numbers, species and sizes of discarded fish. The operational environment presents a significant challenge for these tasks. Fish are processed below deck under fluorescent lights, they are randomly oriented and there are multiple occlusions. The scene is unstructured and complicated by the presence of fishermen processing the catch. We describe an approach to segmenting the scene and counting fish that exploits the $N^4$-Fields algorithm. We performed extensive tests of the algorithm on a data set comprising 443 frames from 6 belts. Results indicate the relative count error (for individual fish) ranges from 2\% to 16\%. We believe this is the first system that is able to handle footage from operational trawlers