Clifford Sowell

NAFTA and North American stock market linkages: an empirical note

Abstract This paper provides tests of the co-movement of the North American stock markets. We find over the post-US stock market crash period, 1987:11 through 1997:03, there is no cointegration present in these markets even when the passage of NAFTA is taken into account. The absence of cointegration allows us to draw several conclusions. First, the stock markets of North America are segmented. Second, the passage of NAFTA has not resulted in a greater integration of these stock markets. Finally, the data do not support the notion of a contagion effect from the 1987 U.S. stock market crash. In conclusion, the potential for long-run international diversification across the markets of North America still exists.

The Federal Reserve as a Bureaucracy: An Examination of Expense-Preference Behavior

In this paper, the Federal Reserve System is viewed as a bureaucracy with a bureaus incentive to increase expenses beyond the profit maximizing point. Moreover, the bureau consists of divisions, the district banks, that exhibit their own expense-prefer ence behavior. An empirical investigation of labor demand by the Boar d and district banks reported in this paper demonstrates that the Fed eral Reserve has engaged in expense-preference behavior and that the centralization of the monetary authority amplified this type of behav ior. Copyright 1988 by Ohio State University Press.

TRANSMISSION OF CONDITIONAL STOCK RETURN VOLATILITY ACROSS NORTH AMERICAN MARKETS: Evidence from Pre- and Post-NAFTA

There has been considerable interest in whether stock market volatility is predictable and the extent to which cross-market relationships exist. This article examines the transmission of conditional stock price return volatility across the U.S., Canadian, and Mexican markets. Using daily data over the period 6/2/92-10/28/99 we provide empirical evidence on the extent to which cross-market relationships exist in the pre- and post-NAFTA periods.There has been considerable interest in whether stock market volatility is predictable and the extent to which cross-market relationships exist. This article examines the transmission of conditional stock price return volatility across the U.S., Canadian, and Mexican markets. Using daily data over the period 6/2/92-10/28/99 we provide empirical evidence on the extent to which cross-market relationships exist in the pre- and post-NAFTA periods.

Ability, Age, and Performance Conclusions From the Ironman Triathlon World Championship

A person’s age is used in many ways in economic decisions due to the belief that it is a low cost proxy for ability. Even with this importance assigned to age, however, little economic research has investigated the underlying relationship between age and output. Our purpose is to consider this relationship using data from the Ironman Triathlon World Championship. Our findings indicate that men age faster than the rates estimated by others. Also, unlike other studies, these data allow inferences to be drawn about the linkage between age and ability for women. We find that women age only slightly faster than men, showing some relative increase in aging in later years. At younger ages, however, women appear more responsive to training and maturation (forms of human capital investment) than young men.

Excess reserves during the 1930s: Empirical estimates of the costs of converting unintended cash inventory into income-producing assets

It is often argued that the persistent amounts of excess reserves in the 1934–1941 period were sought either for protective liquidity or as a signal of bank safety to depositors. More recent explanations argue that these excess reserves were unintended inventory due to the high internal adjustment costs of converting reserves to income-producing assets. Our findings support the latter explanation and reveal high internal asset adjustment costs after 1933. Thus, a monetary policy focused on increasing reserves would have been ineffective. A successful monetary policy would be one that increased outside money.(JEL G210, G280, O420)

Monetary and Fiscal Constitutions and the Bureaucratic Behavior of the Federal Reserve

A body of literature has developed that models the Federal Reserve as a self- interested bureaucracy, and not simply as an altruistic bureau guided only by a concern with the public interest. This literature focuses on the monetary constitution—the institutional arrangements and relationships under which the Federal Reserve operates. However, the Federal Reserve also operates under a fiscal constitution (the institutional arrangements that guide development of a federal budget). This is because the Federal Reserve is an agent of Congress. Unfortunately, this important principal-agent relationship has not been incorpo rated into the examinations of the bureaucratic behavior of the Federal Reserve. The purpose of this article is to reexamine the Federal Reserves tendency to engage in expense-preference behavior while controlling for both monetary and fiscal constitutions.

A statistical note on possible institutional regimes in budget policy

Abstract This note makes a statistical case for a shift in the regime that generates fiscal policy. Various tests clearly indicate a point of regime delineation in 1975. This year coincides with the beginning of federal budget development under the Congressional Budget and Impoundment Control Act of 1974. Single equation and multiple equation (VAR) representations are used to describe the development of fiscal policy. Also, preliminary estimates of a reduced form model and the target information content of fiscal policy are presented.

Historical Considerations, Property Rights, and Budgets: A Comment on the Use of Inputs by the Federal Reserve

ConclusionWhen considered in an alternative historical setting with a property right perspective, the extended public choice model found in AMCD offers strong confirmation for the S-T view of monetary authority behavior.In this light, a next step is to find an econometric specification that accounts for changing bureaucratic incentives within changing monetary regimes or constitutions. A rational expectations model of a bureaucratic Fed is beyond the scope of this comment. However, if a public choice approach to Fed behavior is to be useful, it must differentiate between variables, or the effects of variables, in a bureaucratic model relative to a model based on public service. For example, it is unclear how a significant debt variable in a static model of the monetary base supports or confirms a public choice view of the Fed. It is also possible that a public service oriented monetary authority could be motivated by national debt considerations. At least for now, Board employment appears to be a better public choice candidate. It is controllable by the central bankers and would be unimportant if the Fed was only interested in the public welfare.

All politics is local: The effect of fiscal and monetary constitutions on economic policy

Abstract The rules of behavior for the monetary authorities changed in 1933 and 1947 and the Fed temporarily changed its operating procedures in 1979, but these changes did not alter the fact that the monetary authorities serve as the agent of the fiscal authorities. On the fiscal side, a shift from a centralized process to one where Congress was composed of a set of individual entrepreneurs altered the fiscal focus from the national economy to one of localized interests. This change led to a more autoregressive and deficit-prone federal budget and changed the interaction between monetary and fiscal policy. It also elevated the status of monetary policy to the extent where financial markets react to every utterance from the monetary authorities.

The Structure and Use of Inputs by the Federal Reserve

Recently William Shughart and Robert Tollison (S’T), found a (chapter 4 in this volume) significant, albeit small, and causal relationship between the size of the Federal Reserve, measured by the number of system employees, and the annual growth of the monetary base. Elsewhere, Mark Toma (chapter 3 in this volume) found a positive relationship between Fed operating expenses and the level of earnings turned over to the Treasury. Both studies used a bureaucratic framework of central bank behavior as the theoretical foundation for empirical analysis. This perspective stresses the notion that bureau behavior is the result of interacting individuals (bureaucrats) pursuing self-interest within a system of institutional incentives and constraints.