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This paper presents a model where shocks to interest rates, company earnings and the earnings of financial intermediaries all affect the investment of small but not large firms. These shocks also affect the extent of financial intermediation and companies' debt choice. Evidence from micro and macro data supports the model's predictions. I show that shocks which work by weakening the financial position of firms can explain a sizeable part of the growth slowdown in recessions. Conversely, I show that shocks which work by restricting the ability of financial intermediaries to lend are not significant. Consistent with this I find little evidence of a bank lending channel.

The ex post failure of uncovered interest parity (i.e. the forward premium bias) in the post-Bretton Woods era is well documented. Recently, explanations have been offered for this failure which have centred upon the unusual monetary experience over this period. We test these explanations using data from earlier periods as well as subsequent to the adoption of an inflation target. Canada operated a flexible exchange rate regime during the Bretton Woods era, providing a unique opportunity to examine ex post deviations from uncovered interest parity. Canada is also unusual in that it has pursued an explicit inflation rate target since February 1991. We find no forward premium bias over the flexible rate period during Bretton Woods, as well as prior to Canada's adoption of inflation rate targeting (when learning would be expected to have taken place), while a forward premium bias does exist during the inflationary/disinflationary period or subsequent to the new monetary regime.

This paper addresses the issue of whether New Zealand's debt obligations should be denominated in domestic or foreign currency. Using the tax smoothing approach of Bohn (1990) we estimate optimal debt portfolios and compare these to those obtained from a simple mean-variance approach. We find that contrary to current government policy as well as the results from the mean-variance approach, welfare maximising policy is for all public debt to be denominated in foreign currency.

International telephone service providers must decide how to apportion their call revenue between the orgina-ting and receiving networks. The CCITT makes detailed recommendations as to how this should be done. However it is not merely a matter of accounting. Tariffs also create incentives for the administrations own pricing behaviour. Creating the right incentives through appropriate tariffs is crucial to inducing an efficient outcome. This article characterizes optimal tariffs and compares them with the recommendations of the CCITT. Briefly the optimal tariff consists of a flat-rate price per circuit plus a trafficunit price plus a fixed component transfer. Optimal tariffs are time-dependent, depending upon whether demand is peak or off-peak. This characterization enables an assessment of the extent to which current procedures may be inefficient. With appropriate interpretation, our results are applicable to a wide range of telecommunication services.

In this paper we analyse a generalization of vertical monopolies in which monopoly suppliers trade essential inputs with one another. The most obvious applications of the model, which we call symbiotic production, are to postal and telecommunications services. We show how producers can use per-unit tariffs to achieve cooperative outcomes without colluding directly over consumer prices. We then show the firms have an incentive to collude in the setting of tariffs but that such collusion will lower consumer prices. In a world of monopoly suppliers, cartelization of the monopolies improves consumer welfare. This benign view of cartels assumes that the monopoly suppliers are otherwise unfettered. In contrast, if the constituent monopolies are regulated, we show that collusion enables the firms to completely undo the restraints of regulation. The model has important policy implications for the international telecommunications market.