Adam M. Copeland

The tri-party repo market before the 2010 reforms

This paper provides a descriptive and quantitative account of the tri-party repo market before the reforms proposed in 2010 by the Task Force on Tri-Party Repo Infrastructure (Task Force 2010). We provide an extensive description of the mechanics of this market. We also use data from July 2008 to early 2010 to document quantitative features of the market. We find that both the level of haircuts and the amount of funding were surprisingly stable in this market. The stability of the margins is in contrast to evidence from other repo markets. Perhaps surprisingly, the data reveal relatively few signs of stress in the market for dealers other than Lehman Brothers, on which we provide some evidence. This suggests that runs in the tri-party repo market may occur precipitously, like traditional bank runs, rather than manifest themselves as large increases in margins.

Repo and Securities Lending

We provide an overview of the data required to monitor repo and securities lending markets for the purposes of informing policymakers and researchers about firm-level and systemic risk. We start by explaining the functioning of these markets and argue that it is crucial to understand the institutional arrangements. Data collection is currently incomplete. A comprehensive collection would include, at a minimum, six characteristics of repo and securities lending trades at the firm level: principal amount, interest rate, collateral type, haircut, tenor, and counterparty.

THE PRODUCTION IMPACT OF “CASH-FOR-CLUNKERS”: IMPLICATIONS FOR STABILIZATION POLICY

Stabilization policies frequently aim to boost spending as a means to increase GDP. Spending does not necessarily translate into production, however, especially when inventories are involved. We look at the “cash-for-clunkers” program that helped finance the purchase of nearly 700,000 vehicles in 2009. An analysis of auto sales and production movements reveals that the program did prompt a large spike in sales. But the program had only a modest and fleeting impact on production, as inventories buffered the movements in sales. These findings suggest caution in judging the efficacy of such policies by their impact on spending alone.(This abstract was borrowed from another version of this item.)

Measuring the Price of Research and Development Output

We construct a price index for the scientific R&D services industry, a significant producer of R&D in the United States. Unlike most previous R&D price indexes, our index is not based on input costs but rather on measures of R&D sales. Consequently, unlike input‐cost price indexes, our output‐based index is able to account for changes in productivity and markups in the scientific R&D services industry. We compute that scientific R&D services prices increased, on average, by 7.14 percent at an annual rate from 1987 to 2006. Using our index, we find that real revenues grew at an annual average rate of 2.85 percent. We then propose using our index, in combination with an input‐cost price index, to deflate total R&D nominal expenditures. We find that real total U.S. R&D expenditures grew at an average annual rate of 1.42 percent from 1987 to 2006.

Assessing the Quality of 'Furfine-Based' Algorithms

To conduct academic research on the federal funds (fed funds) market, historically one of the most important financial markets in the U.S., some empirical economists have used market level measures published by the Markets Group at the Federal Reserve Bank of New York (FRBNY). To obtain more disaggregate data, some researchers have relied on a separate source of information: individual transactions inferred indirectly from an algorithm based on the work of Furfine (1999). To date, however, the accuracy of this algorithm has not been formally established. In this paper, we conduct a test aimed at assessing the ability of the algorithm to identify correctly individual overnight fed funds transactions conducted by two banks, which are among the most active in the fed funds market. The results are discouraging. We estimate the average type I and type II errors from 2007 to 2011 to be 81% and 23%, respectively. Furthermore, we argue that these errors i) apply to almost half of the algorithms output, ii) introduce systematic biases, and iii) may not subside when the algorithms output is aggregated. Our results therefore raise serious concerns about the appropriateness of using the algorithms output to study the fed funds market. Because the FRBNY Markets Group relies on a different source of data than the algorithm output, our results have no bearing on their understanding of the fed funds market and their calculation of market level measures, including the effective fed funds rate.

The Production Impact of 'Cash-for-Clunkers': Implications for Stabilization Policy

Stabilization policies frequently aim to boost spending as a means to increase GDP. Spending does not necessarily translate into production, however, especially when inventories are involved. We look at the “Cash-for-Clunkers�? program that helped finance the purchase of nearly 700,000 vehicles in 2009. An analysis of auto sales and production movements reveals that the program did prompt a large spike in sales. But the program had only a modest and fleeting impact on production, as inventories buffered the movements in sales. These findings suggest caution in judging the efficacy of such policies by their impact on spending alone.

The Impact of Competition on Technology Adoption: An Apples-to-PCs Analysis

We study the effect of market structure on a personal computer manufacturer’s decision to adopt new technology. This industry is unusual because there exist two horizontally segmented retail markets with different degrees of competition: the IBM-compatible (or PC) platform and the Apple platform. We first document that, relative to Apple, producers of PCs typically have more frequent technology adoption, shorter product cycles, and steeper price declines over the product cycle. We then develop a parsimonious vintage-capital model that matches the prices and sales of PC and Apple products. The model predicts that competition is the key driver of the rate at which technology is adopted.

Exchange Rate Pass-Through, Markups, and Inventories

A large body of research has established that exporters do not fully adjust their prices across countries in response to exchange rate movements, but instead allow their markups to vary. But while markups are difficult to observe directly, we show in this paper that inventory-sales ratios provide an observable counterpart. We then find evidence that inventory-sales ratios of imported vehicles respond to exchange rate movements to a degree consistent with pass-through on the order of 50 to 75 percent, on the high end of the range found in the literature.

The Dynamics of Automobile Expenditures

price changes. We illustrate this asymmetric temporal response through a series of counterfactuals.

Interest Rates and the Market for New Light Vehicles

In this appendix we re-state the household’s and automaker’s problems and derive the first-order conditions in sections A.1 and A.2. We list the equations defining a symmetric market equilibrium (section A.3), provide details on how to reformulate the model so that key variable are in ratio form or growth rates (section A.4), demonstrate how we eliminate the labor input and productivity terms (section A.5), and list the equations describing the steady state of the market equilibrium (section A.6). In section A.7, we report the second-order conditions in the symmetric market equilibrium and discuss su cient conditions for an optimum at the steady state.