Academic Publications

A list of articles published by members of the Dallas Fed Research staff.

2003 | 2002 | 2001 | 2000

2002 Academic Publications

Capital Account Liberalization and Inflation [off-site PDF]
Economics Letters, October 2002
William C Gruben and Darryl McLeod

Evidence from over 100 countries suggests a strong link between capital account openness and lower inflation. In particular, widespread capital account liberalization during the early 1990s appears to have contributed to the world-wide disinflation observed during that decade. Alternative indices of capital account openness, including those of Quinn and Toyoda [Measuring International Financial Openness and Closure, Department of Political Science, Georgetown University, Washington, DC, 1996, mimeo] yield similar results.

Safety and Soudness and the CRA: Is There a Conflict?
Economic Inquiry, July 2002
Jeffery W. Gunther

Ordered probit regressions of the supervisory ratings assigned to banks point to a conflict between the credit enhancement objectives associated with the Community Reinvestment Act (CRA) and financial safety and soundness standards. Aggressive banking strategies tend to help CRA ratings but hurt safety and soundness ratings. In addition, banks with financial problems are more likely to receive substandard CRA ratings, even though their condition may require a retrenchment from CRA objectives. Finally, there is some limited evidence to suggest that a greater focus on lending in low-income neighborhoods helps CRA ratings but at the expense of safety and soundness.

The Likelihood and Extent of Banks’ Involvement with Interest Rate Derivatives as End Users
Research in Finance, October 2002
Jeffery W. Gunther and Thomas F. Siems

Based on annual data for medium-sized U.S. commercial banks from 1991 through 1998, we investigate both the decision of whether to participate in interest rate derivatives and, for those banks participating, the extent of their involvement as end users. We find the hedging of balance sheet positions is an important motivation for involvement in derivatives. In addition, the extent of involvement is directly related to a bank’s capital position. These results pointing to the typical end user as a financially secure bank seeking to hedge unwanted risk argue against the need for any additional restrictions on derivatives activities.

Using recently collected examination data from a sample of texas state-chartered banks over the period 1919–1926, the role of moral hazard in increasing ex-ante asset risk is explored. Analyzing individual bank-level data, we find that the existence of deposit insurance for state-chartered banks increased their likelihood of failure. Increases in loan concentrations followed declines in capitalization at insured state banks. However, we find no statistically significant relationship between loan concentrations and capitalization at uninsured national banks or at state banks before the introduction of deposit insurance. These results show a moral-hazard effect at work.

The distribution free and stochastic econometric frontier estimation methods are used to derive bank specific measures of cost and profit X-efficiency. This is done to investigate the importance of including aggregate measures of off-balance sheet (OBS) activities. The results indicate that economic cost and production cost X-efficiency estimates increase with the inclusion of the OBS measure. Profit X-efficiency estimates are largely unaffected. Further, the composition of banks’ OBS activities appears to help explain interbank differences in cost and profit X-efficiency estimates, whereas bank size and the mix between on- and off-balance-sheet banking activities are largely uncorrelated with the X-efficiency estimates.

Through new online marketplaces and improved supply chain management practices, business-to-business (B2B) electronic commerce (e-commerce) is changing the way transactions are processed, how business relationships are formed, and how fast the U.S. economy will grow. By improving the flow, timeliness, and accuracy of information, B2B e-commerce will move markets closer to the textbook model of perfect competition, which is the Holy Grail of economics. With many well-informed buyers and sellers, low-cost access to information, extremely low transaction costs, and reduced barriers to entry, B2B e-commerce boosts business productivity and lowers costs. But the long-run beneficiaries of these improvements will be consumers, as continued productivity improvements from B2B e-commerce will raise living standards and reduce inflationary pressures.

We use a constrained multiplier, input-oriented, data envelopment analysis (DEA) model to evaluate the productive efficiency of U.S. commercial banks from 1984 to 1998. We find strong and consistent relationships between efficiency and independent measures of performance. Moreover, we find the impact of varying economic conditions is mediated to some extent by the relative efficiencies of banks operating in these conditions. Finally, we find a close relationship between efficiency and soundness as determined by bank examiner ratings. The model could be useful to banks in benchmarking with other institutions and regulators as a complementary off-site surveillance tool in the bank examination process.

This report clarifies the economic effects of the social security surplus and the trust fund, stressing the distinction between the actual surplus and the trust fund accounting mechanism used to record it. The social security surplus contributes to government saving by reducing the overall government's debt to the public, thereby providing a fiscal gain to future taxpayers and spending recipients. This effect is diminished to the extent that the social security surplus triggers an offsetting response in the remainder of the budget. Because the trust fund is merely an accounting device, it neither amplifies nor negates the fiscal gain provided by the surplus. Instead, the trust fund merely allocates the fiscal gain within the government. Despite the fiscal gain provided by the surplus, future generations continue to face a severe fiscal burden under the current-law baseline. A larger social security surplus would alleviate this problem.

The monetary union between the states and regions of the U.S. has been a fertile source of insights about the long-run prospects for European Economic and Monetary Union (EMU). Many have argued that labour mobility has played a key role in facilitating adjustment to local ("asymmetric") shocks in the U.S. and that the absence of such mobility within the twelve-nation euro area spells trouble for EMU in the long term. Labour mobility is simply one of the mechanisms available for smoothing asymmetric shocks: others are also available. This article reviews how one asymmetric shock played out in the U.S., illustrating the key role of migration. It also argues that looking to the past is a poor guide to what we may expect to see in the future: the fact that EMU has occurred with a wide array of other reforms will greatly facilitate the development of adjustment mechanisms that will smooth asymmetric shocks in the future.