PRICE AND QUANTITY RESPONSES TO COST AND DEMAND SHOCKS*

ABSTRACT When prices are inflexible, real variables like production and inventories must bear the brunt of responding to cost and demand shocks. In these circumstances, one expects to observe rather more variation in quantities than in prices, and that is, in fact, what we observe in the data. To explain this observation, one must explain why prices are inflexible. Our goal in this paper is to ascertain whether it is selectivity in response to demand shocks or just a more extensive smoothing of prices than quantities which accounts for the relatively higher variation in quantities which we observe. We conclude that selectivity in response is clearly evident in the data: demand shocks have only very weak effects on prices, but they have substantial (if rather transitory) effects on quantities.     

MODELING EQUILIBRIUM REGIONAL INTEGRATION BY ENDOGENISING MARGINAL COST IN THE COURNOT FRAMEWORK

This paper examines the formation of endogenous alliances between local firms and multinational enterprises (MNE), which in turn drives regional integration in the global economy. The proposed model is an extension of the Cournot duopoly with linear demand, in which the cost function is predicated on the size of local alliance that can be interpreted as the scale of operation. The paper also makes a departure by assuming managers are not only motivated by profits, but also by the scale of operation or "empire building". Forward-looking MNEs strategize their current alliance formation activities from whence we derive a Nash equilibrium configuration of regional integration. We demonstrate that the equilibrium can be beset with multiplicity, indeterminacy, fragility, and chaotic regimes.     

PERMANENT AND TRANSITORY SHOCKS,AND THE UK BUSINESS CYCLE

In this paper the business cycle properties of UK data are investigated using a VAR technique. A Real Business Cycle (RBC) model is formulated. The model includes both permanent and transitory shocks to technology. The business cycle properties of the data and the model are investigated by deriving the expected changes over various forecast horizons from a VAR model. It is found, contrary to evidence in Rotemberg and Woodford (1996), that the model can account for many features of the data and that temporary shocks are pertinent in order to explain the business cycle moments. The main difference between theory and data is present in hours worked. © 1997 by John Wiley & Sons, Ltd.     

NONPARAMETRIC ESTIMATION OF ENTRY COST IN FIRST‐PRICE PROCUREMENT AUCTIONS

In this paper, I investigate Samuelson's low‐price auction model with entry costs. The model's equilibrium implies that the distribution of bids is truncated at the threshold for participation. I use the model to estimate the cost of participation in Michigan highway procurement auctions. The null hypothesis of zero entry costs is rejected. Using my empirical results, I then construct an estimate of the optimal auction, which employs regular policy tools such as entry fees. Finally, I demonstrate the savings that the Michigan government could have made on payments if optimal auctions had been employed. Copyright © 2012 John Wiley & Sons, Ltd.     

ECONOMIC SANCTIONS: FAILED FOREIGN POLICY TOOL AND A COST TO AMERICAN BUSINESS

In recent years the US government has increased its use of economic sanctions in order to punish countries, organisations and individuals. This form of foreign policy has become an increasing burden on US business and adversely affects US competitiveness and perceived reliability in the global marketplace. In addition, economic sanctions are generally ineffective in producing the desired changes and often harm the people they were intended to help. This paper argues that economic sanctions are an increasing menace to US business, represent an ineffective tool of foreign policy, and do not meet generally accepted ethical standards.     

INNOVATION, PRICE COMPETITION AND THE 'TILT' OF COMPETITION POLICY

Innovation is the key to rising living standards; competition is the key to a rapid rate of innovation.     

TAXATION AND THE USER COST OF CAPITAL

This paper provides a review of the concept of user cost and its determinants. Particular attention is given to the influence of taxation. The concept of user cost relates to the rental, the rate of return to capital, that arises in a profit maximizing situation in which further investment in capital produces no additional profit. This paper sets out in some detail the range of assumptions involved in obtaining alternative expressions for the user cost. The user cost refers to a before-tax capital rental, the rate of return that ensures that the (after-tax) cost of capital is equal to the post-tax returns over its life. Hence, associated with the user cost measure is an effective marginal tax rate. This can differ substantially from the statutory marginal rate applicable to the investor. A related effective average tax rate is also defined.     

STRATEGIC AWARENESS, PERSONAL COMMITMENT AND THE PROCESS OF PLANNING IN THE SMALL BUSINESS

This paper is based on detailed study [1], over two years, of sixteen small companies based in the northern region of the U.K. the study was concerned with the way in which the companies pursued different lines of product and market development. the research was characterized by experimental ‘action inputs’ designed to allow observation of the impact of different types of ‘software’(information, counselling, training/education) support on the development process. On the basis of this observation the paper constructs a model of the development process as a basis for evaluation of ‘assistance support’. This model, derived from theoretical concepts, nevertheless has been used in practice by companies for the evaluation of their own specific business development and has also been used for training small firm advisers. Observation of the development process enables a characterization of methods of planning used and evaluation of their influence. This indicates clearly the absence of formal planning models but underlines the importance of the strategic awareness and personal commitment of the owner manager in pursuing particular objectives. Strategic awareness is defined and its relationships with forms of assistance are explored. Implications are then drawn for those who seek to assist small businesses.     

MUTUALITY,PERFORMANCE AND EXECUTIVE COMPENSATION†

ABSTRACTS The determinants of CEO compensation within the UK Building Society sector are investigated. Using an unbalanced panel data set for the period 1986–90, we find only weak support for the existence of a positive link between performance and CEO remuneration. In contrast we find age to be an important determinant of CEO pay increases. This finding reinforces the oft noted potential for inefficiencies in mutuals. Given that alternative market based control systems are absent, our results suggests that there is a lack of any mechanism to align owner and manager interests in the UK building societies.     

GALTONIAN REGRESSION ACROSS COUNTRIES AND THE CONVERGENCE OF PRODUCTIVITY†

ABSTRACTS A Galton model, in logarithmic form is used to explain the convergence of countries' productivities over time, including β and σ convergence. The ‘regression fallacy’ does not arise. When comparing growths and levels of productivity, countries should be classified by their initial levels of productivity, preferably after logarithmic transformation. Errors in the data may justify using an error-in-variables model, or the geometric mean of the original and reverse regressions, but this is not certain.     

PRICE STABILITY AND THE ECB'S MONETARY POLICY STRATEGY*

Abstract.  This paper focuses on the price stability objective within the framework of the single monetary policy strategy. It starts by reviewing what this objective, which is common to all central banks, means. Second, this paper focuses exclusively on the anchoring of short- to medium-term inflation expectations (Part 2). Several measures show that this anchoring is effective. A 'two-pillar' small structural macro-economic model framework is used to analyze the impact that this anchoring of expectations has on the determination of the short- to medium-term inflation rate. From this point of view, observed inflation in the euro area seems to be in line with the theory and the ECB's action seems to be very effective. Third, we focus on the other aspect of monetary stability: the degree of price-level uncertainty and the anchoring of inflation expectations in the medium to long term. Even though this assessment is more difficult than it is in the short to medium term, since we only have a track record covering 6 years, various indicators from the theoretical analysis paint a fairly reassuring picture of the effectiveness of the device used by the ECB.