Among the thirteen original colonies, Pennsylvania was most successful at issuing paper money with only minimal effects on prices --so much so that the colony's experience is sometimes seen as violating the classical quantity theory of money. Quantity theorists usually attribute this apparent anomaly to mismeasurement of the money stock. In contrast, I use data on money, prices, and real activity in Pennsylvania from 1723 to 1774 and for the United States as a whole from 1790 to 1850 (when the money stock is better measured) to show that the long-run behavior of money and prices is well explained by the quantity theory in both periods, despite the differences in institutional arrangements, once growth in monetized transactions is taken into account.

At the outbreak of World War I, the biggest gold outflow in a generation posed a doublebarreled threat to American finance: An internal drain of currency from the banking system and an external drain of gold to Europe. The Federal Reserve System, newly authorized by Congress on December 23, 1913, remained on the sidelines during the summer of 1914, a victim of political and administrative delays. The absence of an operational central bank encouraged Treasury Secretary William G. McAdoo to improvise the modern principle of aiming an independent weapon at each policy target. He employed a form of capital controls to deal with the external threat, shutting the New York Stock Exchange (NYSE) for more than four months to prevent Europeans from selling their American securities and demanding gold in return. And he invoked the emergency currency provisions of the Aldrich-Vreeland Act to deal with the internal threat, allowing banks to issue national bank notes, an important form of currency in pre-Federal Reserve days, without the normal requirement that the currency be secured by U.S. goverment bonds.

A Welfare-to-Work (WTW) program is a mix of government expenditures on various labour market policies targeted to the unemployed (e.g. unemployment insurance (UI), job search monitoring (JM), social assistance (SA), wage subsidies). This paper provides a dynamic principal—agent framework suitable for analysing chief features of an optimal WTW program, such as the sequence and duration of the different policies, the dynamic pattern of payments along the unemployment spell, and the emergence of taxes/subsidies upon re-employment. The optimal program endogenously generates an absorbing policy of last resort (“social assistance”) characterized by a constant lifetime payment and no active participation by the agent. Human capital depreciation is a necessary condition for policy transitions to be part of an optimal WTW program. The typical sequence of policies is quite simple: the program starts with standard UI, then switches into monitored search and, finally, into SA. The optimal benefits are decreasing during unemployment insurance and constant during both JM and SA. Whereas taxes (subsidies) can be either increasing or decreasing with duration during UI, they must decrease (increase) during a phase of JM. In a calibration exercise, we use our model to analyse quantitatively the features of the optimal program for the U.S. economy. With respect to the existing U.S. system, the optimal WTW scheme delivers sizeable welfare gains to unskilled workers because the incentives to search for a job can be retained even while delivering more insurance and using costly monitoring less intensively.

We consider nonparametric estimation of a regression function that is identified by requiring a specified quantile of the regression “error” conditional on an instrumental variable to be zero. The resulting estimating equation is a nonlinear integral equation of the first kind, which generates an ill-posed inverse problem. The integral operator and distribution of the instrumental variable are unknown and must be estimated nonparametrically. We show that the estimator is mean-square consistent, derive its rate of convergence in probability, and give conditions under which this rate is optimal in a minimax sense. The results of Monte Carlo experiments show that the estimator behaves well in finite samples.

Abstract This paper tests the expectations hypothesis (EH) using U.S. monthly data for bond yields spanning the 1952–2003 sample period and ranging in maturity from one month to 10 years. We apply the Lagrange multiplier test developed by Bekaert and Hodrick (2001) and extend it to increase the test power by introducing economic variables as conditioning information and by using more than two bond yields in the model and testing the EH jointly on more than one pair of yields. While the conventional bivariate procedure provides mixed results, the more powerful testing procedures suggest rejection of the EH throughout the maturity spectrum examined.

This paper endogenizes the market structure of an economy with heterogeneous agents who want to form bilateral matches in the presence of search frictions and when utility is nontransferable. There exist infinitely many marketplaces, and each agent chooses which marketplace to be in: agents get to choose not only whom to match with but also whom they meet with. Perfect segmentation is obtained in equilibrium, where agents match with the first person they meet. All equilibria have the same matching pattern. Although perfect assortative matching is not obtained in equilibrium, the degree of assortativeness is greater than in standard models.

We extend the standard specification of the market price of risk for affine yield models, and apply it to U.S. Treasury data. Our specification often provides better fit, sometimes with very high statistical significance. The improved fit comes from the time-series rather than cross-sectional features of the yield curve. We derive conditions under which our specification does not admit arbitrage opportunities. The extension has extremely strong statistical significance for affine yield models with multiple square-root type variables. Although we focus on affine yield models, our specification can be used with other asset pricing models as well.

This paper exploits a new source of variation in Head Start funding to identify the program's effects on health and schooling. In 1965 the Office of Economic Opportunity (OEO) provided technical assistance to the 300 poorest counties to develop Head Start proposals. The result was a large and lasting discontinuity in Head Start funding rates at the OEO cutoff for grant-writing assistance. We find evidence of a large drop at the OEO cutoff in mortality rates for children from causes that could be affected by Head Start, as well as suggestive evidence for a positive effect on educational attainment.

Internet web sites have become an important alternative distribution channel for most banking institutions. However, we still know little about the impact of this delivery channel on bank performance. We observe 424 community banks among the first wave of US banks to adopt transactional banking web sites in the late-1990s, and compare the change in their 1999–2001 financial performance to that of 5175 branching-only community banks. Whereas today virtually all viable community banking franchises offer the Internet banking channel, studying this earlier time period allows us to make clean comparisons between subsamples of “brick-and-mortar” and “click-and-mortar” community banks. We find that Internet adoption improved community bank profitability, chiefly through increased revenues from deposit service charges. Internet adoption was also associated with movements of deposits from checking accounts to money market deposit accounts, increased use of brokered deposits, and higher average wage rates for bank employees. We find little evidence of changes in loan portfolio mix. Our findings suggest that these initial click-and-mortar banks (and their customers) used the Internet channel as a complement to, rather than a substitute for, physical branches.

We study a multi-sector model of growth with differences in TFP growth rates across sectors and derive sufficient conditions for the coexistence of structural change, characterized by sectoral labor reallocation, and balanced aggregate growth. The conditions are weak restrictions on the utility and production functions commonly applied by macroeconomists. Per capita output grows at the rate of labor-augmenting technological progress in the capital-producing sector and employment moves to low-growth sectors. In the limit all employment converges to two sectors, the slowest-growing consumption-goods sector and the capital-goods sector.