money, credit and banking; monetary policy; consumer finance; mortgage credit

American Economic Association

Money, Credit and Banking; Monetary Policy; Consumer Finance; Mortgage CreditSource: Journal of Economic Abstracts, Vol. 6, No. 3 (Sep., 1968), pp. 669-678Published by: American Economic AssociationStable URL: http://www.jstor.org/stable/2719995 .

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Money, Credit and Banking; Monetary Policy; Consumer Finance; Mortgage Credit

CHRISTIAN, J. W. A Further Analysis of the Objectives of American Monetary Policy.

The determination of the indicators upon which the monetary au. thority bases its policy decisions and their relative importance is a nagging problem for monetary economists. Recently, several econo- metric models have been constructed for the purpose of identifying these objectives. This paper subjects the linear model proposed by Dewald and Johnson to additional testing using the technique of moving regression. This approach led to several interesting conclu- sions. In terms of temporal consistency, the linear approximation appeared to be appropriate only for the economic growth objective and for a variable which combined both the employment and growth objectives. The price stability objective was found to be a highly significant determinant of policy actions during inflationary periods, but the linear approximation appeared to be inappropriate. The most consistent results over the 1952-66 period were obtained with free reserves and the short-term bill rate as policy indicators; the money supply gave good results only up to about 1964. Although the temporally inconsistent behavior of the response to the price stability objective may only reflect nonlinearity, it was suggested that a lexicographic ordering of objectives, at least within broad ranges, rather than a system of relative weights and tradeoffs, might be a more accurate way of viewing the policy-formulating framework. It was also found, again in terms of temporal consistency, that the distributed lag formulation was inappropriate for the linear model. Furthermore, the moving regression technique proved to be decid- edly superior to the single-period regression in obtaining information about the behavior of the monetary authority. Jour. Finance, June 1968, 23(3) English. Iowa State University, USA

CMsMTY, G. A. Real and Monetary Forces in Interest Rate Deter- mination.

This article analyzes the world-wide rise in interest rates. It finds real factors responsible, not monetary ones. In general, says the au-

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670 Journal of Economic Abstracts

thor, a central bank's command of interest rates is short-run; money supply changes work their effect within the on-going business cycle; even here, real forces constrain their influence. Over successive cy- cles, real forces are dominant; an era tends towards economic growth or "digestion," and this tendency determines the secular trend of interest. Since 1946 real forces have united to push interest rates almost steadily upward: backlogged demands from World War II and the depressed thirties, population growth, new products and inventions, world trade revival, and the wastes of cold war. Indeed, real forces have dominated every "long cycle"' in interest rates since 1750. Money's role has been subordinate.

Two oft-neglected principles of classical economic analysis show why: the underlying presence of a natural rate of interest, and Wicksell's cumulative process. If an economy recurrently "bumps its head against the full employment ceiling," no manipulation of money supply can keep the market rate of interest permanently below the natural one; monetary expansion will not reduce interest rates, but simply raise prices; inflationary expectations may drive the market rate above the natural rate as lenders act to protect the real value of their loans. Over long eras, interest-rate and price-level trends have moved hand in hand.

The dynamic outlook for U. S. economic growth in coming de- cades suggests that interest rates above 1966's "crisis" levels loom ahead. Inflationary tendencies strengthen this forecast. Southwestern Soc. Sci. Quart., March 1968, 48(4) pp. 602-12 (English). North Texas State University

DAVIES, G. The Regional Significance of I.C.F.C.

Quantitative estimates of regional economic progress are ex- tremely difficult to make with an acceptable degree of accuracy, largely because of the paucity of regional statistics, recently authori- tatively exposed by the Fourth Report from the Estimates Commit- tee, Session 1966-67. Institutional figures which may complement the more macro-economic regional statistics are therefore all the more necessary and welcome. The writer has had access to the detailed regional and local figures of the Industrial and Commercial Finance Corporation, the most important of the key institutions specialising in the investment growth of small and medium firms. This article



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presents, as a result of this information, an attempt to link certain micro- and macro-economic elements of regional progress in a quantitative as well as a qualitative fashion. The dominance of the Lon- don and Midland Regions and the difficulties of Northem England, Wales and the South West are illustrated and analysed, and related to the regional diversification of industry and regional location quo- tients. Finally the question is raised concerning the extent to which I.C.F.G. could be expected to increase its activities in the more difficult regions, and the general conclusion is arrived at that the Corpo- ration's activities in southern Britain are complementary to, and not exclusively competitive with, those of the north and west. Jour. Indus. Econ., Apr. 1968, 16(2), pp. 126-146 (English). The Welsh Office, Cathays Park, Cardiff, South Wales

EIZENGA, W. The Liquid Assets Character of Saving Balances, (Het liquiditeitskarakter van spaartegoeden).

Before 1964, the Netherlands Bank did not count savings balances at money-creating banks and savings banks as secondary liquid assets or "secondary liquidity" (that is, near-money). Secondary liquid assets comprise claims on the public authorities and money-creating institutions, so far as they are held by other than money-creating institutions, which can be converted in large amounts into money at relatively short term without much expense or great loss on the transaction, or which can be used at their par value to make payments in satisfaction of current tax assessments.

However, towards the end of the 1950s it became apparent from the rising value of the velocity of circulation of saving balances at financial institutions that these assets were acquiring increased sig- nfficance for current payments. In 1964, this phenomenon induced the Netherlands Bank to count a certain part of the savings balances -indicated as "liquid" savings balances-as secondary liquidity, whereas the remaining part ("true" savings balances) was not. The Bank did so for better being able to impute the responsibility for monetary disturbances to the various sectors of the economy.

Savings balances acquiring increased significance for current payments is a result of increased competition among financial institutions for the savings of the households sector. This increased competition is due to the fact that the households feel the need of more




services rendered by the financial institutions as their incomes rise. Nowadays those financial institutions whose balance sheets do not comprise an item "Current Accounts" permit households to use their savings balances for maldng current payments. On t-he other hand, there is a tendency towards creating new types of accounts that serve as current accounts for the households in particular. If this tendency is followed up, the liquid assets character of savings balances will grow weaker. De Economist, Jan.-Feb. 1968,116(1), pp. 17-42 (Dutch). Nederlandse Economische Hogeschool, Rotterdam

KLANT, J. J. Liquid and Invested Cash Balances (Kasgeld en kasbelegging).

A restrictive monetary policy in the Netherlands is virtually a policy to adapt the pace of domestic inflation to the pace of inflation abroad. This aim is pursued by limiting the growth of transactions balances in case of a balance of payments deficit. Although in such circumstances the government used to take recourse to inflationary financing, credit rationing and the rise of interest rates cause investment expenditures to slow down.

Transactions balances are, contrary to what Keynes assumed, not completely held in the form of money. Slow components are invested in short term claims, mainly time and savings deposits. In the recent period of credit restriction in the Netherlands short term lending between enterprises has also grown considerably.

The present tightness of liquidity in the Netherlands caused t-he banks to extend the assortment of various kinds of deposits that can be held by their customers. Competition between all the financial intermediaries sharpened considerably. The commercial banks were successful in penetrating the market for savings deposits but they are lagging behind the giro-services and the circulation bank as far as the increase of their demand deposits is concerned.

It is not correct, as Albert Hahn did, to consider commercial banks as pure money creating institutions. The amount of their deposits of various nature depends upon how households and firms choose to distribute their financial assets and to what extent the banks, in competition with the other financial intermediaries, can satisfy their wishes. De Economist, Jan.-Feb. 1968, 116(1), pp. 43-61 (Dutch). University of Amsterdam



Subjects 673

K6NIG, H. Demand Function, Short-Run and Long-Run Function and the Distributed Log. (Einkomnwnskreislaufgeschwindigkeit des Geldes und Zinssatzverinderungens Eine akonometrische Studie iiber die Geldnachfrage in der Bundesrepublik Deutsch- land).

Part I of this study deals with the Latane-type of a function for money demand. Two definitions of money stock have been used: (1) currency (excluding vault cash) plus private demand deposits and (2) currency plus private demand deposits plus private time deposits. Arguments of the demand function are gross national product in current prices and four types of interest rates-the rate for call money as an indicator for the short-term rate, the average yields of all bonds, of mortgage bonds outstanding and of newly issued bonds. All variables are quarterly data for the Federal Republic includ- ing West Berlin. The calculations show the expected sign for the interest rates and no significant difference of the income elasticity from unity. Variations in the interest rate contribute only about 60 p.c. to the variations of income velocity during this period. The inclusion of time deposits improves correlations not significantly and money demand between -0,03 and -0,05 and a long-run elasticity of cities.

In Part II a distinction between short-run and long-run behavior in money demand was made. Starting with the assumption that portfolio behavior of the economic units leads to an optimal stock for given values of income and of the interest rate the introduction of a reaction function results in a Koyck-type distributed lag for both arguments. The calculations produce short-run interest elasticities of money demand between -0,03 and -0,05 and a long-run elasticity of about -0,25. The long-run income elasticity is not significantly different from unity. For the broader definition.of the money stock the interest elasticities are not statistically different from zero on the 5 p.c. level. Separate calculations for time deposits show that the substitution effect between demand and time deposits due to changes in interest rates is greater than the substitution effect between time deposits and other liquid assets so that, consequently, the inclusion of time deposits in the stock of money seems to be not very reasonable for studying t-he short-run behavior of money demand.

In Part III a general distributed lag function for money demand is discussed assuming that the weights can be suitably approximated




by a polynomia of higher degree. Using the Alrnon-technique the "best' fit is given by a distributed lag of four periods for gross national product and five periods for the long-term interest rate result- ing in a long-run income elasticity of about unity and a interest elasticity of about -0,20. At the end of the paper some problems of esti- mation related with the use of least square methods, especially the simultaneous equation bias and the problem of identification, are discussed. Zeitschrift f. ges Staatswiss., 1968, 124(1). Universitat Mannheim

LEIJoNHVuFvuD, A. Keynes and the Effectiveness of Monetary Policy.

The orthodox "Keynesian" case against reliance on monetary policy assumed that expenditures are highly interest-inelastic. At no time did Keynes himself subscribe to this hypothesis. His case was much less sweeping: in certain situations, a Central Bank bound by convention to operate only in short-term instruments might not be able to reduce long rates far enough and rapidly enough.

Keynes diagnosed deflationary disequilibria as due to asset-prices lower than those entering into a hypothetical equilibrium vector. The problem may be (a) an inappropriately high market rate, or (b) unduly pessimistic entrepreneurial expectations. In either case, the Treatise urged a monetary policy to force market rates down so as to raise the demand-price for fixed capital to the level yielding a full employment rate of investment.

In a situation where entrepreneurial expectations have been ad- versely affected by falling money incomes, whereas market rate has already reached the "right" level, the case for a massive assault on bond yields is not strong. Such a policy would imply losses for the Central Bank and for speculators content to go along with the Bank. This learning-experience should make the Bank's task harder the next time around. The alternative is to "correct" entrepreneurial demand-forecasts through direct government spending. By falsifying the forecasts, a rise of asset-prices should be obtained at the going market rate. Further reflection on case (b) may have contributed to Keynes' later preference for fiscal "pump-priming" over the "monetary policy 'a outrance" favored in the Treatise.

Monetary policy is not rendered "unimportant" by the finding that there are situations to the correction of which fiscal measures are better suited. Within Keynes' theoretical framework, it remains as



Subjects 675

vital as ever that market rates be held continuously in the near neighborhood of an appropriately defined "natural" rate. Western Econ. Jour., March 1968, 6(2), pp. 97-111 (English). University of California, Los Angeles, USA

LERNER, A. P. The Economist's Can Opener.

This paper criticizes Professor Milton Friedman's 1967 Presiden- tial address to the American Economic Association, charging him with assuming a degree of flexibility of prices and wages that is appropriate only to "true inflation" and "true deflation." These are conditions where excess demand or deficiency of demand are extreme enough and have lasted long enough to have swept away all the re- sistances that keep wages and prices from reaching supply-equals- demand equilibrium-namely where effective demand is either above or below the range in which wages and prices are "sticky" or move "perversely." The assumed flexibility amounts to seeing only the two tails of the full spectrum of possible levels of effective demand, leav- ing out of consideration that middle range which was uncovered by the Keynesian Revolution and in which we find ourselves almost all of the time. Western Econ. Jour., March 1968, 6(2), pp. 94-96 (En- glish). University of California, Berkeley, USA

LEVHARI, D. AND PATINKIN, D. The Role of Money in a Simple Growth Model.

A theory of money must assume that money balances appear either in the utility function of individuals and/or in the production function of firms. The first of these approaches implies that dispos- able income includes the imputed value of the liquidity services of money balances. This definition-as well as the assumption of a variable savings ratio-is used to modify the Tobin analysis of monetary factors in a Solow growth model. The effect of an increase in the rate of inflation on the steady-state capital/labor ratio is analyzed in terms of an "overall savings effect" (which can be positive or negative) and a "portfolio composition effect" (which is positive, since an increased rate of inflation means a lower rate of return on money balances, as compared with physical capital). Thus the total effect is indeterminate. It is then shown that because of its influence on the holdings of real balances, the rate of inflation that maximizes




steady-state utility is not generally the one that satisfies the ordinary Golden Rule.

The alternative approach-placing money in the production function-is then analyzed. It is shown that even in the case of a constant savings ratio, t-he effects of a change in the rate of inflation on the steady-state capital/labor ratio are indeterminate. It is also shown that optimum balanced growth is achieved by keeping the quantity of money constant, and that this generates a capital/labor ratio which can be interpreted in terms of a modified Golden Rule.

The paper concludes with some comments on a pure inside-money economy, indicating that money is then neutral even in the sense that changes in its rate of expansion do not affect the capital/labor ratio. Am. Econ. Rev., Sept. 1968, 58(4) English. Hebrew University of Jerusalem

SARGENT, T. J. Interest Rates in the Nineteen-Fifties.

The paper presents the results of a cross-spectral analysis of interest rates on three month Treasury bills, one, two, three, four, five, ten, and twenty year U.S. Government bonds, commercial paper, and Moody's Aaa's and Baa's for the period January 1951-December 1960. Coherence, phase, and gain statistics are reported. They indi- cate that, despite wide differences in amplitude, interest rates on a variety of money and capital market instruments were highly asso- ciated during the period examined. The closer the instruments were with respect to maturity and quality, the higher was the association. The timing of the relationships at the various frequencies was such that the government long rates led all other rates, the lead generally increasing with shortening of the maturity and deterioration of quality. Rev. Econ. & Stat., May 1968, 50(2) (English). Carnegie-Mel- lon University

SMIHm, P. E. Probabilistic Demand for Cash Balances and (s,S) Inventory Policies.

This paper first shows that no rational investor will ever hold currency or demand deposits in an optimal asset portfolio inasmuch as alternative assets, e.g. time deposits, exist which are as riskfree as cash but have the advantage of possessing a positive return. Hence, in order to demonstrate that monetary policy operates through



Subjects 677

changes in the interest rate, it is necessary to show that the quantity of cash demanded for transactions purposes is elastic with respect to the rate of interest. After a brief review of the Baumol-Tobin inventory t-heoretical approach to the problem via the lot-size formula, then probabilistic considerations are added by assuming that the expected level of required expenditures are subject to uncertainty and utilizing the (S,s) dynamic inventory control model. A cost function which includes the shortage, ordering, and holding costs as- sociated with holding cash instead an optimal security mix is minim- ized where the holding cost is an opportunity cost variable, e.g. the income given up by not holding earning assets. It is found, as expected, that the quantity demanded of transactions balances is in- versely related to the rate of return on earning assets. Whether it is positively or negatively related to the required expenditures depends upon whether shortage costs are larger or smaller, respec- tively, than are holding costs. If this result is tied to the precaution- ary motive for holding cash balances, the quantity demanded of pre- cautionary balances may be negative. Weltwirtschaft. Archiv, March 1968, 100(1), pp. 72-83 (English). Michigan State University, East Lansing

BARBER, W. F. ANm WOTRUBA, T. R. An analysis of consumer market segmen- tation among financial institutions. Mississippi Valley Jour. Bus. Econ., spring 1968, pp. 31-43.

BERNARD, L. D. Hauts taux d'int6r6t: explication et perspectives. Recherches Econ. de Louvain, Dec. 1967, pp. 533-56.

BETZ, G. W. A note on the money supply in Singapore, 1957-1966. Malayan Econ. Rev., Oct. 1967, pp. 116-21.

BoND, D. E. The effects of a change in the ceiling rates on deposits at commercial banks. Yale Econ. Essays, fall 1967, pp. 139-97.

BONNET, J.-M. Etude des taux d'int6r6t en France de 1959 a 1964: le couit du credit. Rev. Econ., Jan. 1968, pp. 86-129.

BUSE, A. The Bierwag and Grove model of the term structure of interest rates: an altemative British test. Rev. Econ. Stat., Feb. 1968, pp. 123-25.

CLAASsE:N, E. M. Le multiplicateur de la cr6ation de la monnaie. Part 1. Econ. Internaz., Nov. 1967, pp. 599-629.

DeALBERGO, E. Un'identificazione di schemi per Yeconomia finanziaria (I parte). Giorn. d. Econ., Nov.-Dec. 1967, pp. 879-905.

DAvIs, L. E. Capital immobilities, institutional adaptation, and financial de- velopment: the United States and England, an international comparison. Zeitschr. f. die Ges. Staatswiss., Feb. 1968, pp. 14-84.

EINAuDI, L. La burocratizzazione del credito e le proposte di vincolo dei de- positi a risparmio. Riv. di Pol. Econ., March 1968, pp. 83-54.

FRAZER, W. J. JR. Monetary policy, monetary operations and national economic goals. Schweiz. Zeitschr. f. Volkswirtschaft und Stat., March 1968, pp. 1-41.

GIBSON, F. W. The cashless revolution. Westminster Bank Rev., Feb. 1968, pp. 20-30.




KRuL, N. G. Teoria e politica monetaria: tappe di un ravvicinamento. Ris- parmio, Nov. 1967, pp. 1929-95.

LABLA, N. A. The rate of inflation: an integration of real and monetary factors. So. Afr. Jour. Econ., March 1968, pp. 58-68.

LEE, S. Y. A note on banking and currency in Singapore. Malayan Econ. Rev., Oct. 1967, pp. 122-26.

Momssais, L. Les effets de la r6glementation des ventes et prets i temperament sur la consommation privde en Belgique. Cahiers Econ. de Bruxelles, 1968, 37(1), pp. 18-46.

MOTTURA, P. La forza contrattuale delle aziende richiedenti credito bancario. (With English summary.) Risparmio, Jan. 1968, pp. 1-116.

MunPHz, N. B. A cross-section analysis of demand deposit variability. Jour. Fin. and Quant. Analysis, March 1968, pp. 87-95.

ONADO, M. Aspetti fondamentali del sistema bancario australiano. (With Eng- lish summary.) Risparmio, Dec. 1967, pp. 2131-2201.

SELBY, E. B. JR. The inside lag of monetary policy, 1953-58. Quart. Rev. Econ. Bus., spring 1968, pp. 39-51.

SMrrir, G. W. Decreasing utility for money and optimal corporate debt ratio. Engin. Econ., winter 1968, pp. 87-104.

SOPRANI, P. La manovra del saggio ufficiale di sconto nei moderni sistemi bancari. (With English summary.) Risparmio, Dec. 1967, pp. 2089-2130.

TIMMERMANS, A. P. De la liquidite bancaire et de ses instruments. Annales de Sci. Econ. Appliqu6es, Dec. 1967, pp. 489-583.

URBAN, S. M.-L. Les caisses d'6pargne et le financement de re6conomie en Republique F6d6rale d'Allemagne et en France. Rev. de Sci. Fin., Jan.- March 1968, pp. 51-88.

VANES, F. R. De markt van het schatkistpapier in Belgie. (The market for treasury bills in Belgium. With English summary.) Tijdschrift v. Econ., 1967, 12(4), pp. 342-78.

WACHT, R. F. Branch banking and risk. Jour. Fin. and Quant. Analysis, March 1968, pp. 97-107.

WLLETT, T. D. Interest arbitrage and the absolute level of interest rates. Riv. Internaz. di Sci. Econ. e Com., Feb. 1968, pp. 132-37.



money, credit and banking; monetary policy; consumer finance; mortgage credit

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