Issues

  • Fall 2013 Vol. 2 Iss. 1
  • Run on Guardian Trust Company and National City Bank in 1933
    David Hu
    Yale
    Fall 2013 Vol. 2 Iss. 1
    As the only nationwide bank to have its deposits fully backed by the government, the U.S. postal savings system exerted a significant influence on the banking system. In addition to providing a safe haven for deposits, the postal bank was designed to redeposit its holdings with commercial banks so as to prevent government competition with the private sector. Previous research suggests that these features caused the postal savings system to have a negative impact during bank runs: savers would seek refuge with the postal bank, but the postal deposits would not be redeposited with local banks. However, these analyses fail to account for potential endogeneity and regional variation. To resolve these issues and establish causality, I construct instruments from the unique institutional features of the postal savings system. There are three main results that refute previous hypotheses in the literature. First, there is a negative correlation between postal deposits and bank failures. Second, I obtain evidence that redepositing by the postal bank helped to prevent bank runs. Third, I find that the contagion effect of bank failures on the demand for postal deposits is highly localized. Altogether, these results help to refine the existing framework used to understand the relationship between the postal savings system and bank runs.
  • Figure: Counterfactual Interest Payments with Zero-Coupon Securities
    Jacob Berman
    U. Chicago
    Fall 2013 Vol. 2 Iss. 1
    This paper explores how the maturity structure of public debt affects the evolution of debt/GDP and net interest/GDP in the United States. I construct a model to simulate counterfactual debt management strategies, and then extend the model forward to estimate how changes in the maturity structure can be expected to influence debt management outcomes in the future. In my preferred strategy, I find that the Treasury could save as much as $424 billion in borrowing costs over the next 10 years by rapidly increasing the maturity of new issues.
  • Table: OLS Estimates of the Effect of Bank Failures on Postal Deposits
    Erica Segall
    Yale
    Fall 2013 Vol. 2 Iss. 1
    To test for the existence of generational or “cohort” effects in U.S. spending behavior, I incorporate Age-Period-Cohort (APC) modeling, which disentangles three distinct time-related effects on changes in behavior, into Deaton and Muellbauer’s (1980) Almost Ideal Demand System (AIDS). The result is an empirical model that accounts for these nuanced time effects but is also consistent with the principles of consumer theory. Estimation of the model using data from the Consumer Expenditure Survey suggests that household budget allocations exhibit significant cohort effects, and that including cohort effects significantly improves demand models that account only for age. The existence of these effects suggests that cohort membership can influence an individual’s preferences and spending patterns across the life course.
  • Table: Linear Probability Regression of Healthcare, Full Sample
    Jisoo Han
    Princeton
    Fall 2013 Vol. 2 Iss. 1
    Immigrants and their children are a growing segment of the American population. Despite the importance of the immigrant population in policy considerations, immigrants have worse access to health care than natural-born citizens and are more likely to be uninsured. I analyze the relationship between language use at home and access to health care for the children of immigrants. I use a dataset containing demographic and health characteristics of children in the state of California. Using survey data from 2009, I estimate how language spoken at home affects measures of access to care and how these effects vary with parental citizenship status. I find that two factors, coming from households speaking an Asian language and having non-citizen parents, are most significantly associated with decreases in access to health care.
  • Figure: time series for aggregate dispersion of analyst forecasts and average first-day IPO return
    Aditya Rajagopalan
    Princeton
    Fall 2013 Vol. 2 Iss. 1
    I model the effect of disagreement on short-term IPO underpricing and long-term IPO under-performance. Given the existence of short-sales constraints and momentum traders, sufficiently high disagreement amongst investors triggers short-term over-performance and long-term under-performance as momentum traders magnify the effect of short-term disagreement. I verify these predictions empirically using data for aggregate disagreement and various measures of IPO abnormal returns, turnover, and frequency. I find that aggregate disagreement has an increasingly positive effect on initial post-IPO abnormal returns and turnover, and a negative effect on long-term post- IPO abnormal returns. My results also indicate that the effect of aggregate disagreement is amplified by gradual information diffusion in both the short- and long-term. This paper provides a new model combining the disagreement and information cascades hypotheses of the IPO Puzzle, and new empirical evidence explaining the IPO Puzzle through aggregate disagreement.

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