The Economic Contributions of Hyman Minsky: varieties of capitalism and institutional reform

The work of Hyman Minsky represents an important link between Post Keynesians and Institutionalists. This essay begins with a brief summary of Minsky's early work, including his well-known financial instability hypothesis and his policy proposals designed to reform the financial system. It then moves on to discuss other proposals that are less well known, and developed after the publication of his Stabilizing an Unstable Economy (1986) book. One of them in all the work of Minsky is his demand that theory be institution-specific. Because there are a variety of possible types of economies, theory must be appropriate to the specific economy under analysis. His analysis concerned an evolving, developed, big-government capitalist economy with complex and long-lived financial arrangements. His policy recommendations were designed to promote a successful, democratic form of capitalism given these financial arrangements. These policies would have to ‘constrain’ instability through creation of institutional ‘ceilings and floors’ while at the same time addressing the behavioral changes induced by reduction of instability. The policies would also have to promote rising living standards, expansion of democratic principles, and enhancement of security for the average household.     

Business groups and the incorporation of firm-specific shocks into stock prices

Firm-specific information has a damped effect on business group-affiliated firms’ stock prices. Such firms’ idiosyncratic stock returns are less responsive to idiosyncratic commodity price shocks than are the idiosyncratic returns of otherwise similar unaffiliated firms in the same country and commodity-sensitive industry. Using global commodity shocks means we assess responses to common idiosyncratic shocks of the same magnitude, frequency, and observability. Further identification follows from difference-in-difference tests exploiting successful and matched exogenously failed control block transactions. We conclude that business group firms’ stock prices provide less firm-specific information to capital providers and managers.     

Visitor perceptions of the role of tour guides in natural areas

This paper explores the potential of tour guides to contribute to the protection of natural areas by educating their customers through interpretation and modeling environmentally appropriate behaviors. Applying Cohen's (1985) model of the guides' role, modified by Weiler and Davis (1993) Weiler, B. and Davis, D. 1993. An exploratory investigation into the roles of the nature-based tour leader. Tourism Management, 14(2): 91–98. [Crossref] , [Google Scholar], as a framework, it examines the potential role that kayak tour guides can play in shaping the experience of visitors to one marine area, the Pacific Rim National Park. It uses two approaches to explore the perceptions of clients about the role of kayak guides using: (1) a pre- and post-trip questionnaire and (2) participant observation. Results indicate that five of the six roles were rated high in importance, but one role, the communication role, was not as important. Comparing performance with importance attached to each role revealed congruence with five roles, but lower levels of performance in relation to importance with the role of “motivator of responsible behavior”. Variability within all of the importance and performance measures suggest that for some individuals, performance did not match importance, highlighting the need to consider market segmentation in future studies. These findings are discussed within the ecotourism paradigm, and their implications for protected area management and for visitor behavior modification are considered.     

Short term labour market consequences of teenage pregnancy

Pregnancies by unwed teenagers leading to either a birth or an abortion lead to fewer years of completed education. Less education translates to lower wages and a corresponding decrease in labour supplied to the market. The empirical results for young women who give birth are similar to the findings of other studies. The results for young women who have abortions are original. This research indicates that young women who become pregnant as teenagers have poorer short-term labour market outcomes than other young women who do not become pregnant.     

A comparison of two methods for estimating income uncertainty with an application to aggregate consumption behaviour

Econometric theory now provides various techiniques for estimating the variance of a variable for which only a single. Observation is available at each sample point. This paper compares the autoregressive conditional heteroskedastic (ARCH) and linear moment (LM) estimated of the variance of disposable labour income as measures of income uncertainty. Consumer theory postulates a negative relationship between uncertainty about future income and current consumption. Using quarterly post-world war II data with income modelled as a random walk with drift, both ARCH and LM estimates of the variance of income are included in a standard specification of the consumption function. It is found that while noth the ARCH and LM estimates of income uncertainty provide essentially the same predicted reduction in consumption growth as uncertainty increases the LM estimates yield a statistically significant influence on consumption while the ARCH estimated do not. However, both uncertainty measures provide a statistically significant imporvement in the specification of the consumption function relative to estimating the equation in the absence on an uncertainty measure. Thus, recent advances in estimation techniques, for post-world waf II data, show that the uncertainty theorists of over two decades ago were correct, that is estimation of a consumption function in the absence of an uncertainty measure relults in an equation with a biased estimate of the marginal propensity to consume as well as biased estimates of coefficients for all other included variables (see e.g. Leland, 1968, PP. 470-472).     

Dynamic general equilibrium analysis of improved weed management in Australia's winter cropping systems*

A recent analysis indicated that the direct financial cost of weeds to Australia's winter grain sector was approximately $A1.2bn in 1998–1999. Costs of this magnitude represent a large recurring productivity loss in an agricultural sector that is sufficient to impact significantly on regional economies. Using a multi‐regional dynamic computable general equilibrium model, we simulate the general equilibrium effects of a hypothetical successful campaign to reduce the economic costs of weeds. We assume that an additional $50m of R&D spread over five years is targeted at reducing the additional costs and reduced yields arising from weeds in various broadacre crops. Following this R&D effort, one‐tenth of the losses arising from weeds is temporarily eliminated, with a diminishing benefit in succeeding years. At the national level, there is a welfare increase of $700m in discounted net present value terms. The regions with relatively high concentrations of winter crops experience small temporary macroeconomic gains.     

RETHINKING BANK REGULATION: A REVIEW OF THE HISTORICAL EVIDENCE

The debate over bank powers has taken on special urgency with the recent flurry of proposed mergers, such as the Citicorp-Travelers Group combination, that would break down the barriers between commercial and investment banking. After more than a decade of failed attempts to expand the scope of permissible bank activities, the House of Representatives recently voted for the first time in favor of a bill to end these Depression era limitations. The issue will be taken up by the Senate this fall. Most of the rationales for regulating banks fall into two broad categories: (1) the need to control potential conflicts of interest stemming from banks' multiple roles as deposit-takers, lenders, securities underwriters, and investment advisers; and (2) the perceived need to protect against the possibility of bank panics and widespread financial instability. In reviewing the historical evidence compiled by banking and finance scholars over the years, this article finds remarkably little cause for concern and suggests the regulatory cure may be far worse than the disease. On the first issue, the article cites a number of recent studies suggesting that market forces deal more effectively than regulation with conflicts of interests that can arise when commercial banks are engaged in securities underwriting. Contrary to the conventional wisdom, investors during the pre-Glass-Steagall era appear to have been better off when they purchased securities from commercial banks rather than investment banks. Moreover, to enhance their credibility in the market, many commercial banks during this period chose to put some distance between their lending and underwriting activities by establishing separate securities affiliates, thereby creating voluntary “firewalls.” In examining the issue of how the expansion of bank powers would affect economic stability, the second half of the article cites a large body of research–including studies of different historical periods and countries–attesting to the durability of commercial (and universal) banking systems. Indeed, one of the most important findings issuing from this research is that the regulatory safety net has often had the unfortunate impact of undermining rather than promoting financial stability.     

Explaining the accrual anomaly by market expectations of future returns and earnings

This study examines the accrual anomaly under the framework of the Campbell [Campbell, J.Y. (1991). A variance decomposition for stock returns. Economic Journal 101 (405), 157-179.] model. The Campbell (1991) model shows that realized asset returns are a joint function of 1) expected returns, 2) revisions in market expected future returns (i.e., return news), and 3) revisions in market expected future cash flows (i.e., cash flow news). The current study adopts the Easton [Easton, P. (2004). PE ratios, PEG ratios, and estimating the implied expected rate of return on equity capital. The Accounting Review 79 (1), 73-96.] model to estimate proxies for expected returns, return news, and cash flow news. The results show that firms with low accruals have lower expected returns than firms with high accruals, which is contradictory to prior research that argues that firms with low accruals are more risky. However, investors underestimate (overestimate) future earnings growth, a proxy for cash flow growth, for low (high) accrual firms. Further analysis demonstrates that earnings news (proxy for cash flow news) plays a major role in explaining abnormal returns associated with the accrual anomaly.