Browsing by Author "Douglas K. Pearce, Committee Chair"

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Banking Structure and The Effect of Monetary Policy on Bank Lending.
(2005-08-11) Termos, Ali A; John Seater, Committee Member; John Lapp, Committee Member; Matt Holt, Committee Member; Douglas K. Pearce, Committee Chair
This dissertation examines the role of bank structure on the effectiveness of monetary policy. Using time series data for U.S. banks, I examine the varying effect of monetary policy on bank lending for the period 1976-2003. It is found that as the banking industry gets more concentrated (through mergers and acquisitions), the effect of monetary policy transmission (through open market operations) is being mitigated. That was the result of the deregulation of the banking sector that took place in the first half of the 1990s which led to an unprecedented wave of consolidation in the banking sector. Then I investigate the lending channel evidence at the bank level. That is, how important is the cross-sectional differences in the way that banks with varying characteristics respond to policy shocks. Three bank characteristics are highlighted: bank size, liquidity and capitalization. It is found that large, more liquid, and well capitalized banks are more impervious to changes in monetary policy than other banks. Real estate loans, agriculture, commercial and industrial (C&I), and consumer loans are analyzed. The size of the bank is found to be most crucial for real estate lending, where small banks are much more sensitive to changes in the federal funds rate compared to large banks. The effect is comparatively less pronounced for C&I and consumer lending and largely disappears when it comes to agriculture lending. Finally, the question of monetary policy asymmetry is examined. As expected, monetary policy has more effect on bank lending when it tightens than when it eases interest rates. This is found to be the case for all types of loans except for real estate loans, where a decline of FFR entices more real estate lending than a rise.
Essays on Economic Variability, Dynamics of Adjustment, and Exchange Rate Flexibility
(2005-11-17) Al-Abri, Almukhtar Saif; Barry K. Goodwin, Committee Co-Chair; Douglas K. Pearce, Committee Chair; Thomas J. Grennes, Committee Member; Atsushi Inoue, Committee Member
This dissertation revisits the literature on the role of exchange rate flexibility in smoothing the adjustments of the economy to different disturbances. Recently, the role of flexible exchange rates in stabilizing the economy against real shocks has been challenged by the new open economy models, which build on some empirical regularities, such as the low pass-through from nominal exchange rates to import prices. We take three approaches in an attempt to enrich this literature. Firstly, we incorporate factors of production into welfare analyses of fully-specified general equilibrium models. We find flexible exchange rate regimes reduce terms of trade and consumption volatility for primary commodity economies, particularly oil-exporting. Secondly, in an empirical investigation, using a panel Vector Autoregressive Regression of nine of the OECD's major oil-importing countries and the Reinhart and Rogoff's de facto classification of exchange rate regimes, we find support for the hypothesis that flexible exchange regimes better absorb oil-price shocks. We also document feedback from the real effective exchange rate and inflation rate to the domestic-currency real oil price shocks, supporting the growing notion that oil price shocks are not purely exogenous to developed economies. Thirdly, in a micro-level empirical investigation, we find a significant improvement in estimating the degree of nominal exchange rate pass-through to import prices when the adjustment costs and the equilibrium degree of pass-through assumptions are considered. More specifically, using a vector threshold cointegration model, we find increases in both the initial reaction and the long-run equilibrium response of import prices to nominal exchange rate changes for five industries in 16 OECD countries, especially for the manufacturing industry.
The Fear of Floating and the Turkish Experience
(2006-07-05) Onder, Yusuf; Tom Gerig, Committee Member; John S. Lapp, Committee Member; Douglas K. Pearce, Committee Chair
This paper gives a brief description of the fear of floating concept and discusses the Turkish fear of floating experience. Using the intervention data released by the Central Bank of Turkey, we then estimate a reaction function for the Central Bank's interventions, conducted between the years 2002 — 2006. We make use of a multinomial logistic model to estimate a reaction function for both buy and sell interventions separately. Our results show that the TRL⁄USD exchange rate level, deviations from the trend and exchange rate market volume are all important factors in the Central Bank's reaction function. The Central Bank's response exhibits differences between selling USD interventions and buying USD interventions. Moreover, we also find that the Central Bank is more responsive to higher volatility in the case of depreciating Turkish New Lira environment.
Relationship Lending and Lines of Credit for Small Business
(2010-04-12) Gong, Jie; Douglas K. Pearce, Committee Chair; Karlyn Mitchell, Committee Member; Howard Bondell, Committee Member
This thesis examines the influences of bank-borrower relationships on the terms for bank lines of credit for small business. I use the Surveys of Small Business Finances data to estimate two models: an OLS Regression explaining the premium over the prime rate and a Logistic Regression for the probability of collateral requirements. I focus on those firms with lines of credit with floating rates from commercial banks and use contract, financial, governance, industry and relationship characteristics as explanatory variables. Dun and Bradstreet (D&B) credit scores, minority status and gender are also added to previous models reported in the literature. My results are: (1) Small firms with longer market experiences will pay lower premium rates over the prime rate and firms with higher risk D&B credit scores will pay higher premiums. These results are both statistically and economically significant. However, the length of bank-borrower relationships does not have a statistically significant effect on the loan rate. Although lines of credit may provide more â€˜soft-informationâ€™ on borrowers during bank-borrower relationships, banks still put more weight on credit scores and the firmsâ€™ age. (2) There is no statistically significant relationship between Relationship Characteristics and the probability of collateral requirements. Banks pay more attention to Financial Characteristics and type of ownership. D&B credit scoring system plays a more important role than bank-borrower relationship status. (3) Minority status and gender do not have impacts on loan rates or the probability of pledging collateral.