Herbert M. Kaufman

A Comparison of Trade Execution Costs for NYSE and NASDAQ-Listed Stocks

We compare average trade execution costs during 1994 for sets of large, medium, and small capitalization stocks listed on the New York and NASDAQ stock markets. All measures of execution costs examined, including quoted bid-ask spreads, effective spreads (which allow for executions within the quotes), and realized spreads (which measure price reversal after trades), are larger for NASDAQ-listed than for NYSE-listed stocks. The differentials in average trading costs across exchanges are greater for medium and small capitalization issues than for large capitalization stocks and are greater for small compared to large trades. These differentials cannot be attributed to cross-exchange differences in the adverse selection costs of market-making. Furthermore, we find no evidence that average execution costs on NASDAQ declined after the publicized events of May 1994.

Monetary interpretations of the Great Depression

Frank Steindl asks why, despite much monetary work in the intervening years, it was not until Friedman and Schwartz put forward their monetary interpretation of the depth of the Great Depression that the monetary approach was rescued from disrepute and established as one of the most widely held explanations for the Depression.To answer this question, the author explores the work of economists writing before Friedman and Schwartz. Among those investigated are Angell, Currie, Fisher, Hawtrey, Simons, Snyder, and Viner--economists of the first rank. Other approaches examined include those of Harry G. Brown, C. O. Hardy, Lionel Edie, Willford King, Arthur Marget, Lloyd Mints, Lionel Robbins, James Harvey Rogers, and H. Parker Willis.These analyses are examined in relation to the central elements of Friedman and Schwartzs framework, an analytical core that includes a money supply mechanism and an interpretation of the Federal Reserves role in bringing about a dramatic decline in the money supply. A central finding is that their monetary interpretation stands alone and was not anticipated. The notable exception is Warburton, whose work was largely ignored because of its lack of clarity. Professor Steindl goes on to explore in terms of the nature of scientific inquiry why the other interpretations did not anticipate Friedman and Schwartz.This book will be of interest to monetary economists, especially historians of monetary thought, students of the Great Depression, and philosophers of science.Frank G. Steindl is Regents Professor of Economics, Oklahoma State University.

The Effect of Changes in the Federal Reserve's Policy Rule on the Stochastic Structure Linking Reserves, Interest Rates, and Money

In October 1979 the Federal Reserve announced a fundamental reform in its monetary control procedures [2]. The alleged rationale for abandoning the old procedures, utilized more or less continuously since 1970, was to improve the Feds control over the growth of the monetary aggregates-the so-called intermediate policy targets. As often accompanies political and social reform, the spectrum of criticism of the Feds alteration in procedures was wide. This criticism ranged from the charge that the Fed had gone too far, or alternatively had regressed, to, ironically, the charge that nothing had changed. Such competing contentions are in this case largely generated by the lack of incontrovertible evidence that monetary control improved after 1979 and the considerable increase in the volatility of interest rates which ensued.

Modeling central bank behavior: What have we learned?

Abstract Within the literature on monetary and fiscal policy there exists a wide range of results on the role and effects of policy, both domestically and internationally. This article focuses on various inadequacies associated with the modeling of central bank behavior as an important source of the disparities. The role of policy procedures and regulations in influencing causal relationships and the dynamic adjustment of the financial system to disturbances is highlighted. At the practical level, the evolution of monetary policy in the United States is reviewed and compared to policy procedures in other major countries, with special emphasis on the implications for empirical studies. Finally, the various ramifications for contemporary policy analysis within the across interdependent nations are explored with an eye towards enhancing the reliability, robustness, and predective power of our models.

SHORT-RUN VARIATIONS IN THE MONEY STOCK*

* We would like to thank Esmond Adams, Helen Farr, Edward Fry, Charles Lieberman, Richard Marcis, Thomas Mayer, William Poole, Richard Puckett, V. Kerry Smith, Helmut Wendel and an anonymous referee for helpful comments on earlier drafts of this paper, and Lauren Dillard and John DuBois for invaluable research assistance. The views expressed in this paper do not necessarily reflect those of anyone in the Federal Reserve System. 1 While monetary researchers have frequently alluded to several of the points raised in this paper, until recently only Kaminow [16] and Poole and Lieberman [26] have actually examined any of the issues surrounding the quality of the money stock data. In early 1974, however, the Board of Governors of the Federal Reserve System announced the formation of a special committee of prominent academic experts to review the statistics on the monetary aggregates. The report of this committee was published in the spring of 1976 [27] and their discussion of the issues where applicable to this paper is presented below. identify and adjust for seasonal variation obscures important issues underlying cyclical and seasonal movements in time series. In addition, the results of frequency domain and time domain tests are presented which support the view that present adjustment techniques produce a distorted seasonally adjusted series. It is suggested that correcting such distortions will require a structural model of seasonality similar to those commonly used to investigate cyclical relationships among series. While the focus of this paper is on the money stock series, many of the issues discussed, distortions identified, and solutions offered, have general applicability. A major implication of our findings is that the confluence of seasonal and cyclical forces operating on short-run movements (month-to-month, and quarter-to-quarter) in key published series, such as the seasonally adjusted money stock, may often generate misleading signals for those trying to evaluate the thrust of policy and the pace of economic activity.