From Planning Models to Descriptive General Equilibrium

I had known Manohar Rao for a long time. For many years I tried to lure him to join the Indira Gandhi Institute of Development Research. He always gave me his disarming smile but his loyalty to Bombay University and to his students was unshakable. He was deeply interested in improving tools for better policy analysis. Hence in this paper I raise some related issues.

     

“Do Fiscal Deficits Influence Current Accounts? A Case Study of India”

This paper examines the effects of fiscal deficits on the current account deficits in the Indian economy. In many developing countries, fiscal deficits are mostly financed through monetization, causing crowding out of private investment expenditures. However, fiscal deficits in India are mostly financed through official borrowings from various external sources, leading to higher interest payments and outgoings on the external account. Such a policy could eventually precipitate balance of payments crises despite favorable trade account and real exchange rate. Data over three decades for the Indian economy show that, in addition to the real exchange rate and the ratio of private investment to GDP, fiscal deficits significantly contribute to the current account deficits.     

Preparing for higher inflation: Portfolio solutions using U.S. equities

Investors have always been interested in reducing inflation risk in their portfolios. However, investors face different types of inflation than those measured by the Consumer Price Index (CPI). Moreover, different asset classes can be used to hedge portfolio inflation. In this paper, we show how individual equities can be used to construct equity portfolios sensitive to customized inflation targets. We illustrate portfolios for three types of inflation: US headline CPI, Forbes Cost of Living Extremely Well Index, and the US Medical Care Price Index. We also show how alternative weighting schemes, such as minimum volatility and maximum inflation beta, can be used to construct inflation‐hedged portfolios.     

Stock returns and economic activity: the UK case

This paper investigates the relationships between real stock returns and a number of financial and economic variables for the UK economy for the period 1980 to 1994. We begin by discussing a theoretical model proposed by Balvers et al. and then re-estimate for the UK what may be regarded as an application of that model by Fama applied to the US market. This reproduces Fama's main results. For the UK we than suggest a slightly, different application of the Balvers model, the most important feature of which is the use of expectational macro-economic variables instead of Fama's use of leading values of industrial production. We then go on to investigate the unit root properties of the data and show that much of the data is indeed characterized by the presence of unit root non stationarity In the light of this, we propose an application of the Phillips-Loretan error-correction model and show that this provides a plausible relationship between real stock returns and most of the financial and economic variables.     

Living to 100 and beyond--implications of longer life spans

The challenge of longer life spans will center on the problem of allocating individual, family and social resources most effectively. To create a context for understanding the significance of measuring and forecasting mortality trends, this article addresses concerns about the implications of increasing longevity to very high ages for families, businesses and society as a whole.     

A Regional Analysis of Technical Change in Australian Manufacturing

Manufacturing is an important sector to many Australian regional areas. Technical change is important to the economic performance of manufacturing and improvements in competitive advantage. In this paper, technical change in manufacturing is estimated for each of the Australian States using a cointegration framework, for the period 1954–55 to 1995–96. Regional differences in technical change are identified.     

THEORY AND PRACTICE OF DECENTRALIZED PLANNING PROCEDURES

Abstract. The paper surveys the theory of decentralized planning procedures, dealing with price-guided, quantity-guided and mixed procedures. Informational and incentive properties of the various procedures are dealt with, as is the problem of public goods. The practice of planning in the USSR, Hungary and India is also discussed.     

Managerial Stock Ownership and Debt Diversification

In this study, we examine the impact of managerial behavior on the debt diversification decisions of firms using the agency cost of debt framework. We hypothesize that managers with higher equity ownership should favor debt diversification to avoid efficient monitoring by debt holders and thus, be able to engage in risk‐shifting behavior. Our empirical results provide strong evidence for a positive association between managerial ownership and debt diversification. This relationship is observed to be stronger for smaller firms, which are traditionally more susceptible to the moral hazard problem. Our results remain robust for an alternate measure of debt diversification.     

How Sensitive is FDI to Differences in Corporate Income Taxation within the EU?

Differences between corporate taxation of EU member states drive a wedge between after-tax and pre-tax productivity. This implies that productivity could be increased by reallocating capital from low-tax to high-tax member states. Moreover, the integration of the EU capital market may trigger tax competition among member states. The responsiveness of investors to taxation is crucial for the importance of both the misallocation of capital and the extent of tax competition. In this paper we measure this responsiveness by examining the relation between FDI positions and effective corporate income tax rates. Our estimates show that investors from one EU member state increase their FDI position in another EU member state by approximately four percent if the latter decreases its effective corporate income tax rate by one percentage point relative to the European mean.     

An analysis of duration of unemployment: 1967–1979

The purpose of this paper is to estimate the duration of unemployment during the period 1967 – 1979 using the concept of a stationary register. The estimate of duration is obtained usingU=iD whereU is stock of unemployed,i is total inflows entering the pool of unemployed andD is duration of unemployment. Both ratio and regression estimates suggest that duration of unemployment has increased from 1.90 months to 4.5 months and this increase cannot be explained entirely by search-turnover views.