Browsing by Author "Douglas Pearce, Committee Chair"

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Asymmetric Responses of Nominal Rates, TIPS Rates, Break-Even Inflation Rates, and the Stock-Bond Correlation to Macroeconomic Announcements
(2010-03-29) Darwin, Robert William; Michael Brandt, Committee Member; Walter Thurman, Committee Member; Denis Pelletier, Committee Member; Douglas Pearce, Committee Chair
Utilizing daily instantaneous forward rates of nominal and inflation-indexed bonds as well as realizations of stock and bond index returns, I examine the informational content of a broad set of macroeconomic announcements. I find evidence that, with a few exceptions, price variables mainly move break-even inflation rates, while real variables move TIPS rates and/or break-even inflation rates. An analysis of movements in the stock-bond correlation finds that, with some exceptions, expected future interest rates are the important component of the informational content of expansionary announcements to production variables and employment variables. In recessions, I find evidence that expectations of future economic growth or an equity risk premium are the important news conveyed by shocks to some production and employment variables, again with some exceptions. Similarly, for price variables I find evidence that in expansions shocks either proxy for future economic activity or provide information about expected future nominal rates which investors mistakenly use to value equities rather than expected real rates. In recessions (at least for core PPI) some evidence points to the news content referencing future economic growth or the equity risk premium. Consistent with previous results in the literature, results on movements in the stock-bond correlation agree with rising correlations in expansions and falling correlations in recessions. Additionally, in looking at monetary policy shocks to the federal funds target rate I notice that expectations of growth or the equity risk premium are embedded in shocks that `go against the grain' of the expected path given an economic state (negative expansionary and positive recessionary shocks). Formal tests for state and sign asymmetries in the magnitudes of responses to macroeconomic shocks generally yield sparse significant results, though for production variables mainly indicate greater effects of expansionary over recessionary and negative over positive shocks, with some exceptions. Finally, state asymmetry in the response of TIPS rates to monetary policy announcements indicates long-run expansionary momentum and long-run recessionary reversal in monetary policy.
An empirical investigation of lending to small businesses
(2008-11-07) Min, Kyung-Seol; Lee Craig, Committee Member; John Lapp, Committee Member; Douglas Pearce, Committee Chair; Karlyn Mitchell, Committee Co-Chair
ABSTRACT MIN, KYUNG-SEOL, An Empirical Investigation of Lending to Small Businesses. (Under the direction of Douglas K. Pearce and Karlyn Mitchell.) This dissertation analyzes lenders' two important decisions (loan approval decision and loan rate decision) in their loan evaluation procedures using the SSBF (Survey of Small Business Finances) data sets. First, I examine what factors play important roles in the determination of loan interest rates. In this test procedure, following Vickery (2007), I split the data sets into fixed-rate and variable-rate loans to find systematic differences in the loan rate determination between these two loan types. The regression results of the loan rate model are different from general expectations in many respects. Not many independent variables have significant coefficient estimates. There is little consistency among the three regression results (2003, 1998, and 1993 SSBF data sets) both in fixed-rate and in variable-rate loans. Wide use of credit scoring is analyzed to be one explanation of the disappointing results. Lenders evaluate the credit risk of loan applicants with their own credit scoring system, and they mainly use the credit scores in deciding whether to approve the loan, and for the approved loans, the loan rates do not vary much according to their credit scores. Next, the test results of the credit rationing theory by Stiglitz and Weiss (1981) show that in the higher market interest rate period lenders' credit standards get also higher, so they ration credit more than in the lower market interest rate period. Finally, in the analysis of ethnic discrimination, Asians and Hispanics were less discriminated against in 2003 than in 1998, but African-Americans still higher loan denial rate than white applicants. The enhanced objectivity in lenders' loan evaluation procedures by using the credit scoring models might be associated with the decreased ethnic discrimination, but more collection of the SSBF data sets and analyses using these data sets are needed to support this explanation.
Evaluating the Rationality of The Wall Street Journal's Panel of Economists
(2003-12-17) Houck, Adam Christopher; Douglas Pearce, Committee Chair; John Lapp, Committee Member; John Monahan, Committee Member
This paper will explore a methodology that will examine the difference between average and individual forecasts, concentrating on whether individual Wall Street Journal forecasters are unbiased and efficient. This result is important because the past literature has examined the accuracy of average forecasts, not individuals. In addition, a brief evaluation of Lamont's (2002) hypothesis will follow. Lamont determined that as forecasters become older and more established, in many instances deviations from the consensus forecast grew with time. The method adopted will allow for the testing of whether individual forecasts are unbiased and rational, telling more about how individuals, not averages, behave in broader contexts.