This paper presents an analysis of a quasi-risk-averse bank facing uncertainty with respect to demand deposit flows and default risk on loans. On the basis of a formal model, testable hypotheses of bank attitude toward risk and the qualitative behavior of the index of relative risk aversion for commercial banks are developed. Through the use of data on the member banks of the Tenth Federal Reserve District, the empirical tests that were conducted indicated that banks are strongly risk-averse and that their index of relative risk aversion is increasing in profits. These results suggest that favorable (unfavorable) environmental changes will generate income effects that will result in proportionately less (more) risk taking by banks.

This paper considers the relationship between the variability of sectoral employment and unexpected inflation. The framework used is a multisector version of Friedman's well-known model of the business cycle. The model suggests that sectoral employment variability is a quadratic function of unexpected inflation and the rate of growth in real GNP. The model is tested using annual U.S. data on sectoral employment in the nonagricultural economy from 1901 to 1978. Inflationary surprises and the rate of real growth are found to explain between 60% and 85% of the variability in relative sectoral employment performance.

This paper presents a partial equilibrium model of the labor market that allows the real wage, the expected real wage, and the level of employment to be expressed as functions of unexpected inflation, inflation uncertainty, and supply shocks. Regression equation estimation using U.S. data from 1948 to 1980 suggests that inflationary surprises and uncertainty cause countercycical movement in real wages. Various supply shock variables are introduced. The findings suggest the importance of oil shocks as compared with measures based on food or imports, but only after 1973.

This study examines the effect of bank concentration on financing constraints of non-financial firms in 14 European countries between 1992 and 2005. Using firm-level data we analyze financial constraints with the Euler equation derived from the dynamic investment model. We find that with a highly concentrated banking sector firms are less financially constrained. This result is robust to consideration of firm opacity, firm size, and business cycle. Relaxation of financial constraint while greater for firms in less opaque industries also accrues for firms in more opaque industries. Greater bank concentration is associated with less tight financial constraint during both expansions and recessions. Results overall are consistent with an information-based hypothesis that more market power increases banks’ incentives to produce information on potential borrowers. Findings are robust to consideration of country specific institutional factors.

This paper investigates the influence of liquidity in the major developed and major developing economies on commodity prices. Liquidity is taken to be M2. A novel finding is that unanticipated increases in the BRIC countries’ liquidity is associated with significant and persistent increases in commodity prices that are much larger than the effect of unanticipated increases in G3 liquidity, and the difference increases over time. Over 1999–2012 BRIC liquidity is strongly linked with global energy prices and global real activity whereas G3 liquidity is not. The impact of BRIC liquidity on mineral and metal prices is twice as large as that of G3 liquidity. Granger casualty goes from liquidity to commodity prices. BRIC and G3 liquidity and commodity prices are cointegrated. BRIC and G3 liquidity and global output and global prices are cointegrated. We construct a structural factor-augmented error correction (SFAVEC) model.

A mixture innovation time-varying parameter VAR model is used to examine the impact of structural oil price shocks on U.S. stock market return. Time variation is evident in both the coefficients and the variance-covariance matrix. The standard deviations of the demand side structural shocks reached forty year peaks during the global financial crisis and have remained high since. In the real stock return equation the coefficient of global real economic activity has declined since the late 1990s and that of oil-market specific demand oil shock has been lower since the early 1990s than before. The structural oil shocks account for 25.7% of the long-run variation in real stock returns overall, with substantial change in levels and sources of contribution over time. The contribution of shocks to global real economic activity to real stock return variation rose sharply to 22% in 2009 (and remains 17% over 2009-2012). The contribution of oil-market specific demand price shocks rose unevenly from 5% in the mid-1970s to about 15% in 2007, with a subsequent decline. The contribution of oil supply shocks has trended downward from 17% to 5% over 1973-2012.