Fashion: the design–marketing mismatch?

This paper is based on an empirical research programme undertaken to explore the clothing and fashion perceptions of design and design-related versus management-related students. It is proposed that there is a cultural divide between design and management students, which could extend into Company life — with implications for organizational effectiveness. The paper therefore explores aspects of the U.K. fashion industry, such as its recent performance and the perceptions of the embryo designers and managers.     

Escaping Volatile Inflation

Why has inflation been so stable in developed economies since the early 1990s? In this paper, we answer that the United States and other countries may have escaped from a volatile inflation equilibrium. Our argument builds on the story proposed by Tom Sargent in The Conquest of American Inflation, where the fall in inflation in the 1980s was attributed to changing government beliefs. To explain the escape in inflation volatility, we unwind one of Sargent's simplifications and allow the government to react to some of the shocks in the economy. In this case, when government beliefs turned against the Phillips curve in the 1980s they not only led to an escape from high inflation, but also stopped government using changes in inflation to offset shocks. Inflation and inflation volatility therefore escaped in tandem. Our analysis also sheds some light on why the escape in inflation occurred at the time it did.     

Sovereign Default,Domestic Banks,and Financial Institutions

We present a model of sovereign debt in which, contrary to conventional wisdom, government defaults are costly because they destroy the balance sheets of domestic banks. In our model, better financial institutions allow banks to be more leveraged, thereby making them more vulnerable to sovereign defaults. Our predictions: government defaults should lead to declines in private credit, and these declines should be larger in countries where financial institutions are more developed and banks hold more government bonds. In these same countries, government defaults should be less likely. Using a large panel of countries, we find evidence consistent with these predictions.     

Repo Runs: Evidence from the Tri‐Party Repo Market

The repo market has been viewed as a potential source of financial instability since the 2007 to 2009 financial crisis, based in part on findings that margins increased sharply in a segment of this market. This paper provides evidence suggesting that there was no system‐wide run on repo. Using confidential data on tri‐party repo, a major segment of this market, we show that, the level of margins and the amount of funding were surprisingly stable for most borrowers during the crisis. However, we also document a sharp decline in the tri‐party repo funding of Lehman in September 2008.     

Bank Capital Regulation and Structured Finance

We model the interaction between bank capital regulation and financial innovation. Innovation takes the form of structured finance, namely, pooling and tranching of assets and the creation of separate structures with different seniority, different risk, and different capital charges. Structured finance can improve welfare by manufacturing safer securities, saving on the capital that the structures with different seniority need to satisfy incentive constraints. The divergence between private and social interests in future profits motivates regulation. Regulation lowers profits and may induce banks to innovate to evade the regulation itself, even if this decreases welfare.     

Borrowing Constraints,Home Ownership and Housing Choice: Evidence from Intra‐Family Wealth Transfers

We study the impact of borrowing constraints on home ownership and housing demand by comparing the tenure choice and housing quality of consumers who receive intra‐family wealth transfers to those that do not. Our analysis is based on household‐level panel data providing information on the receipt of wealth transfers, changes in tenure status as well as changes in the size and quality of housing. On average we find that the receipt of a wealth transfer increases the propensity of consumers to transition from renters to home‐owners by 6–8 percentage points (35% of the sample mean). Additional analyses suggest that this effect is unlikely to be driven by wealth effects and can thus be attributed to the relaxation of borrowing constraints. By contrast, wealth transfers do not increase the likelihood that existing homeowners “trade‐up” to larger homes in better locations.     

Valuation Risk and Asset Pricing

Standard representative‐agent models fail to account for the weak correlation between stock returns and measurable fundamentals, such as consumption and output growth. This failing, which underlies virtually all modern asset pricing puzzles, arises because these models load all uncertainty onto the supply side of the economy. We propose a simple theory of asset pricing in which demand shocks play a central role. These shocks give rise to valuation risk that allows the model to account for key asset pricing moments, such as the equity premium, the bond term premium, and the weak correlation between stock returns and fundamentals.     

DID GOOD INSTITUTIONS PRODUCE GOOD TARIFFS? EVIDENCE FROM TARIFF PROTECTION IN COLONIAL VICTORIA

Were tariff rates in the Australian colony of Victoria directed towards growth‐enhancing industries or rent seekers? Recent research suggests tariffs may be welfare enhancing if they are directed at industries with positive externalities; something more likely when institutions are strong. Using disaggregated tariff data for the years 1872, 1880, and 1890, we analyse the relationship between industry characteristics and tariffs, finding little evidence that Victorian industries with positive externalities received tariff protection. Our results throw doubt on good institutions necessarily producing good tariff outcomes and suggest the relationship between tariffs and growth is more complex than current studies assume.     

Executive Compensation and the Maturity Structure of Corporate Debt

Executive compensation influences managerial risk preferences through executives' portfolio sensitivities to changes in stock prices (delta) and stock return volatility (vega). Large deltas discourage managerial risk‐taking, while large vegas encourage risk‐taking. Theory suggests that short‐maturity debt mitigates agency costs of debt by constraining managerial risk preferences. We posit and find evidence of a negative (positive) relation between CEO portfolio deltas (vegas) and short‐maturity debt. We also find that short‐maturity debt mitigates the influence of vega‐ and delta‐related incentives on bond yields. Overall, our empirical evidence shows that short‐term debt mitigates agency costs of debt arising from compensation risk.     

COINTEGRATION AND CHANGES IN REGIME: THE JAPANESE CONSUMPTION FUNCTION

In this paper we examine a model of cointegration where long-run parameters are subject to switching between several different cointegrating regimes. These shifts are allowed to be governed by the outcome of an unobserved Markov chain with unknown transition probabilities. We illustrate this approach using Japanese data on consumption and disposable income, and find that the data favour a Markov-switching long-run relationship over a standard temporally stable formulation. © 1997 by John Wiley & Sons, Ltd.