A Theory of Production for the Financial Firm by Diana Hancock PDF

By Diana Hancock

ISBN-10: 9401057222

ISBN-13: 9789401057226

ISBN-10: 9401138702

ISBN-13: 9789401138703

Furthermore, if the results of rules on consumer bills are excluded, it truly is very unlikely to investigate financial coverage results. bankruptcy 2 examines the central components of law that impact person charges. for instance, reserve specifications, as administered by means of the Federal Reserve, act as a tax on monetary organisations so lined. Required reserves earn no go back to the monetary company and there's foregone profit. Deposit coverage raises the person price of servicing deposits to the banks. rate of interest rules position limits on rates of interest on time de­ posits, or limit funds on call for deposits in the course of a part of the interval studied. Underlying some of these are the open marketplace operations of the Federal Reserve, and their results on rates of interest and the amounts of economic items. bankruptcy 2 unearths that earlier paintings at the estimation of financial institution tech­ nologies is incomplete, and that the laws require modelling as part of the revenue maximizing constitution. 1.3 person price Derivation bankruptcy three discusses the development of consumer expenditures. those are derived for the prone from all resources or liabilities on a financial institution stability sheet or showing at the source of revenue assertion. The consumer expense formula allows items to be labeled as outputs and inputs. people with a good consumer rate, the place costs according to unit exceed sales in line with unit, are inputs. The unit for monetary items resembling loans or deposits is one buck consistent with interval. items with a unfavorable consumer price, with expenses falling lower than profit consistent with unit, are outputs.

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Extra resources for A Theory of Production for the Financial Firm

Example text

8The user cost formulation below can accommodate the case where the financial firm is allowed to hold reserves in an asset which pays interest. 32 A Theory of Production where there are N2 types of deposit and R is the discounting rate. The term Rkj has the interpretation of being the cost imposed by the reserve requirement. This is equivalent to the imposition of a tax by the Federal Reserve for one period, for the bank is unable to use the reserve requirement in its loan portfolio. If the deposit has a positive user cost in a period it is an input, and if it has a negative user cost it is an output.

The transformed user cost of deposit j, Uj, can be defined, u. J = J~ { u· -Uj if UJ· > 0 otherwise j = 1, ... 17) A Theory of Production 46 for j = 1, ... , N2. Using the notation u as a Nl + N2 vector of normalized user costs, we can rewrite the profit function 7r(u, v, w). 17), we have the following comparative static results. If the ith asset is an input and has a positive user cost, ayt or; = ay'! aCj ayt au; au; or; a27r au; < au; or; - = a27r 7f2 0 SInce Uj a2 7r au; ayt au; aUj aCj a27r > 0 aUj < aut - 'aCj a2 7r aUj 7f2 ~ 0'8 ~ - ' = - - = - - < 0 SInce aur aCj ayt = ayt aUj = a27r aUj < 0 as; au; as; au; as; ay'!

The first term is the initial nominal liability Yi,t-iPt-lJ plus holding costs or revenues incurred at unit rate hi,t-i. From this is subtracted the total nominal liability to depositors at the end of the period, Yi,tPt . On an asset such as a loan, flows are received at the end of the period, and the financial firm is effectively repaid its outstanding balance at the end of the period. 1) ;=1 where bi = 1 if the financial service is a liability, i = 1, ... , N 2 , and bi = -1 if the financial service is an asset, or i = 1, ..

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A Theory of Production for the Financial Firm by Diana Hancock

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