Aiding regional instability? The geopolitical paradox of Japanese development assistance to China

During the past decade, Japan established itself as the largest bilateral donor of development aid in the world, with more of it directed toward projects in China than any other recipient. Japan sees its aid flows to China as maintaining economic stability in East Asia, particularly as China's raw material and energy resources are articulated into regional markets. In this article, I argue that Japan's aid to China may unintentionally diminish Japan's and the East Asian region's long‐term security for two reasons. First, similar to other nations receiving such assistance, this aid may allow China to reallocate scarce capital to military modernisation. Such military modernisation may enable China to both better suppress internal dissent and carry out a more aggressive foreign policy. Second, this aid does not address the fundamental structural aspects of China's present instability. Long‐term structural instability has many sources, but the two discussed here are socio‐economic inequality (both interregional and intraregional), and sustainable production and environmental problems. Taken together these have important regional and geopolitical implications and repercussions. This article fills a gap in the existing literature on East Asian geopolitics. Namely, that by attending only to relatively short‐term corporate and perceived state interests of China and Japan, Japanese aid to China does little to ameliorate and potentially exacerbates long‐term structural social and environmental problems for China's vast majority living in rural hinterlands. The potential for internal turmoil springing from this uneven and unsustainable development inside China is the real basis for China's ‘threat’ to East Asian security. Thus what appears to make good development and geopolitical sense at first look, Japan's current aid regime with China, paradoxically may actually be the worst path to follow.     

Moving average stochastic volatility models with application to inflation forecast

We introduce a new class of models that has both stochastic volatility and moving average errors, where the conditional mean has a state space representation. Having a moving average component, however, means that the errors in the measurement equation are no longer serially independent, and estimation becomes more difficult. We develop a posterior simulator that builds upon recent advances in precision-based algorithms for estimating these new models. In an empirical application involving US inflation we find that these moving average stochastic volatility models provide better in-sample fitness and out-of-sample forecast performance than the standard variants with only stochastic volatility.     

From Experience: The Corporate Black Hole

There is a lot of creative potential lying dormant in corporations because too many managers fail to see innovation as a process to be deliberately managed. C. Joshua Abend sees innovation connected to virtually everything that happens—or doesn't happen—in an organization. He offers in this article ideas that managers can use to remove the impediments to increased innovation and productivity.     

On the tradeoff between wage indexation and foreign exchange intervention

Zusammenfassung Zum “trade-off” zwischen Lohnindexierung und Intervention auf dem Devisenmarkt. - In diesem Aufsatz analysieren die Verfasser die Beziehung zwischen dem optimalen MaΒ für Lohnindexierung und dem für Wechselkursinterventionen. Die optimalen Gr?Βen für diese beiden wirtschaftspolitischen Instrumente werden mit Hilfe einer gemeinsamen Optimierung unter Berücksichtigung ihrer wechselseitigen Interdependenz ermittelt. Das bei der Untersuchung verwendete Modell wird gepr?gt durch die Charakteristika der stochastischen Schocks, die die Volkswirtschaft beeinflussen, und durch das Informations-bündel, das die Wirtschaftssubjekte annahmegem?Β besitzen. In der Analyse wird sowohl geprüft, wie der optimale Lohnindexierungsgrad mit dem gesamten Spektrum m?glicher Wechselkurssysteme zusammenh?ngt, als auch untersucht, wie das optimale AusmaΒ der Wechselkursinterventionen von dem gesamten Spektrum m?glicher Lohnindexierungsgrade abh?ngt. Eines der Hauptergebnisse ist, daΒ es keine monotone Beziehung zwischen den optimalen Werten der beiden wirtschaftspolitischen Instrumente gibt. Worin der “trade-off” zwischen ihnen genau besteht, wird in der Untersuchung im einzelnen dargelegt.

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Résumé Le ?trade-off? entre l’indexation salariale et l’intervention en taux de change. — Dans cet article les auteurs analysent la relation entre les degrés optimum de l’indexation salariale et l’intervention en taux de change. Les valeurs optimum des deux instruments de politique sont obtenues par une ?optimisation? jointe considérant leur interdépendance mutuelle. Le modéle utilisé est déterminé par les caractéristiques des chocs stochastiques qui affectent l’économie et par les informations des individus. L’ analyse examine la dépendance du degré optimum de l’indexation salariale du spectre total des régimes possibles de taux de change et, vice-versa, la dépendance du degré optimum de l’intervention du spectre total des degrés possibles de l’indexation salariale. Un des résultats principaux est l’absence d’une relation monotone entre les valeurs optimum des deux instruments de politique. De plus, l’analyse détermine la nature précise du ?trade-off? entre eux.

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Resumen Sobre el ?trade-off? entre la indexaci?n de salarios y la intervenci?n en el mercado de cambios. - En este trabajo los autores estudian la relaci?n entre grados óptimos de indexaci?n de salarios y de intervenci?n en el mercado de cambios. Mediante una optimizaci?n simultánea, que toma en cuenta la interdependencia de estas medidas, se obtienen valores óptimos para ambos instrumentos de politica económica. El modelo utilizado incorpora las caracterfsticas de los shocks estocásticos que afectan a la economfa y el conjunto de informaciones a disposici?n de los individuos. El análisis examina la dependencia del nivel ?ptimo de indexaci?n de salarios de todo el espectro de polfticas cambiarias posibles, como también la dependencia del nivel ?ptimo de intervenci?n en el mercado de cambios de todo el espectro de grados de indexaci?n de salarios posibles. Uno de los resultados centrales es la ausencia de una relaci?n monot?nica entre los valores óptimos de ambos instrumentos; en el análisis se détermina la naturaleza exacta del ?trade-off? que existe entre ellos.

     

Bush v. Gore and the Effect of New Source Review on Power Plant Emissions

New Source Review (NSR) is a Clean Air Act regulation that requires electric utilities to meet emission standards when making modifications to existing power plants. The regulation increases the cost of replacing worn out parts, and limits the firm’s scope of potential capital investments. Such restrictions may lead to greater retirements and lower utilization, adversely affecting profits. Prior to the 2000 presidential election, investors expected Bush to have a narrower interpretation of NSR than Gore. Therefore, we use changes in stock prices to estimate the effect on profits of differences in NSR policy. Our results indicate that investors expected the average boiler to be $38 million more valuable under the Bush administration. Over the boilers’ lifetimes, the additional utilization will have increased emissions by 19 million tons of sulfur dioxide, 5.9 million tons of nitrogen oxides and 980 million tons of carbon dioxide, relative to natural gas generation.      

FUTURE POLICY UNCERTAINTY, EFFORT, AND THE RESPONSIVENESS OF OUTPUT TO MARKET SIGNALS

This paper analyses the consequences of future policy uncertainty on the allocation of effort in an economy undergoing reforms. We demonstrate that uncertainty regarding future tax policies may reduce present effort, and will also reduce the responsiveness of output to productivity shocks and other market signals. The discussion has relevance for cases in which privatization will make present managers of firms the future owners and residual claimants to future output. An expectation that the purchasing price of the firm will have a positive relationship to present output will induce the manager to reduce contemporaneous effort, and uncertainty regarding the relationship will also depress present managerial effort.     

Competitive Neutrality in Access Pricing

This article examines the notion of competitive neutrality when setting access prices for vertically integrated bottleneck networks. In contrast to the claims of regulated firms (for example, Telstra), it is not possible to argue that access charges that involve unit prices in excess of short‐run marginal cost reflect competitive neutrality. That is, we demonstrate that in general models of downstream oligopoly, upstream prices that differ from marginal cost are not competitively neutral in the sense of placing integrated and non‐integrated firms on an equal basis.     

Interim audit scope,client size and client familiarity: An empirical analysis

This study investigates the scope of an audit conducted during the first part of the annual auditing cycle. It measures empirically the probability of auditing various balance sheet and income statement accounts. The results indicate that current assets and liabilities have a higher probability for an interim audit than fixed assets, long-term debt and equity accounts. Furthermore, the likelihood of including each account in an interim audit increases with client size, so the larger an auditee, the wider the audit scope during the beginning of the audit cycle. Also, the empirical results indicate that the lower the familiarity of the auditor with the auditee, the wider the scope of an interim audit. These results seem to be consistent with auditing theory and intuition.     

Food Stamp Benefits and Child Poverty

In 2000, 8.8 million children lived in households participating in the Food Stamp Program, making this assistance program a crucial component of the social safety net. Despite its importance, little research has examined food stamps' effect on children's overall well-being. Using the Current Population Survey from 1989 to 2001, we consider the impact of food stamps on three measures of poverty—the headcount, the poverty gap, and the squared poverty gap. We find that in comparison to the headcount measure, food stamp benefits lead to large reductions in the poverty gap and squared poverty gap measures.     

The Causal Structure of Land Price Determinants

This paper investigates causation contemporaneously and dynamically to elucidate the persistent lack of agreement about what "causes" changes in farmland prices. The analysis synthesizes and extends previous investigations in this area by employing a combination of directed acyclic graphs (DAG), a recently developed modeling technique, and cointegrated VAR model. DAG theory and algorithms offer a powerful tool for analyzing contemporaneous causal relationships among economic variables. The results from this study confirm the importance of measures of return to farming, financial (credit market constraints) and/or macroeconomic activity as significant determinants of fluctuations in farmland prices.
Le présent article examine la causalité de façon contemporaine et dynamique pour élucider le manque persistant de consensus quant aux causes de variations du prix des terres. L'analyse est une synthèse des études antérieures de même qu'un prolongement effectuéà l'aide d'une combinaison de graphes acycliques orientés (DAG), technique de modélisation mise au point récemment, et du modèle VAR cointégré. La théorie des DAG et les algorithmes constituent un outil puissant pour analyser les liens causals contemporains des variables économiques. Les résultats confirment l'importance du rendement de l'activité agricole, des contraintes financières (contraintes du crédit) et/ou de l'activité macroéconomique comme déterminants significatifs des variations du prix des terres agricoles.