WORLD OUTLOOK

Events in the Gulf have finally brought an end to the world economic boom of the last eight years. The oil price shock itself is only partly responsible for the downturn. The previous tightening of monetary policy in the face of inflationary pressures and the end of a rapid period of credit and asset price expansion had severely weakened the ability of some economies to respond to the shock. This is reflected in the diversity of response, most obviously in the United States where Fed fine tuning and the credit crunch have already weakened the economy. The rise in oil prices has led to a sudden collapse in consumer confidence and a swift cutback in output. Although we do not expect the recession to be deep, the financial problems will delay recovery. The Japanese economy was already in financial difficulties before the shock, although the real economy was stronger and here we expect a sharp deceleration from almost 6 per cent growth last year to around 3.5 per cent. In contrast the German economy, partly shielded by the substantial appreciation of the DM over the last year, has been affected less by the oil price shock and we expect the consumer and investment boom to continue this year as the economies merge. This provides a welcome boost to other European economies.     

Competition and structural change in Eastern Europe

Widely publicized reform programs for East Europe which emphasize rapid privatization are questioned on the grounds that structural changes to assure workable competition take precedence and will take years. A mix of deconcentrated state, cooperative, worker-owned, private, and foreignowned business can be workable. Import competition and antitrust legislation have auxiliary roles.     

A comparison of several approximations to the power function of the likelihood ratio test in covariance structure analysis*

In this paper we compare alternative asymptotic approximations to the power of the likelihood ratio test used in covariance structure analysis for testing the fit of a model. Alternative expressions for the noncentrality parameter (ncp) lead to different approximations to the power function. It appears that for alternative covariance matrices close to the null hypothesis, the alternative ncp's lead to similar values, while for alternative covariance matrices far from H_o the different expressions for the ncp can conflict substantively. Monte Carlo evidence shows that the ncp proposed in Satorra and Saris (1985) gives the most accurate power approximations.     

Innovators, Organization Structure and Management of the Innovation Process in the Securities Industry

This article examines innovation in the securities industry with the central objective of identifying factors that separate innovators from non-innovators. Akira Iwamura and Vijay Jog report results based on their survey of corporate finance vice presidents or CEO's of 43 investment houses from around the world. They conclude that innovative companies seem to be larger and have a well-defined strategy, with management defining the focus of the business. In addition, the firms have developed better communication channels, both internally and with their customers. Yet, the most significant difference that separates innovators from non-innovators is their management of the idea generation process, including concept generation and management's support. Innovators tend to approach idea generation in the following ways: they employ a variety of idea sources, both internal and external; they assign a specific person or group to be in charge of developing new ideas; they encourage employees at all levels to generate new ideas; they use a variety of innovative techniques to stimulate creativity; they reward their employees by non-monetary means; and they encourage group-level participation in evaluation decisions.     

Demand for durable and nondurable goods,environmental policy and consumer welfare

If a tax on energy affects the demand for a nondurable good, the stock of a durable good, and the proportion of the energy consumption per unit of service of the durable good, an integrated approach for investigating consumer demand for durables and nondurables is required. The purpose of this paper is to employ the concept of a variable expenditure function with quasi-fixed durable goods as arguments in order to derive a demand system for nondurable goods in prices of the nondurables, in the stocks of durables, and in variable expenditure. From the envelope condition desired stocks of durables can be calculated and investment demand for durables can be determined. For an application we choose a variable expenditure function based on the almost ideal demand specification, and evaluate alternative environmental policy measures using the equivalent variation for comparing the welfare effects.     

COMPUTABLE GENERAL EQUILIBRIUM MODELS FOR DEVELOPMENT POLICY ANALYSIS IN LDCs

Abstract. The use of CGE models has gained much popularity among policy analysts in LDCs and there is a fast growing body of literature on this area of economics. In this survey, the advantages of general equilibrium approach over partial equilibrium approach in analysing a wide range of policy issues are highlighted. The evolution of CGE modelling is discussed and more than 60 CGE applications related to different policy issues in LDCs are surveyed. This comprehensive survey shows that the CGE models have become quite popular analytical tools among policy analysts in LDCs over the last decade or so. The debate in the economic profession regarding the value and appropriateness of using CGE models for policy analysis is examined in the final section of this paper. Some of the criticisms levelled at CGE models are discussed and it is argued that despite this criticism such models are capable of providing insight into important policy problems.     

Corporate Leverage and Nondebt Tax Shields: Evidence on Crowding-Out

A negative relationship between corporate leverage and tax shields has been predicted because a large nondebt tax shield reduces the expected value of interest tax savings and lessens the advantage of debt financing. Previous studies, however, have provided inconclusive and contradictory evidence on whether nondebt tax shields crowd-out debt financing. The analysis herein relies on unique constructs of discounted depreciation tax shields and presents evidence that crowding-out does not occur. Furthermore, it is shown that contradictory inferences may result from analysis of annual tax depreciation deductions instead of discounted tax shields. The findings suggest that firms with substantial cash flow from depreciation exploit their higher debt capacity by maintaining a capital structure with significantly more debt than otherwise.     

Shadow Financial Regulatory Committee statements

Shadow Financial Regulatory Committee statements