Interest rate assumptions and predictive accuracy of central bank forecasts

The interest rate assumptions for macroeconomic forecasts differ among central banks. Common approaches are given by the assumptions that interest rates remain constant over the forecast horizon, follow a path as expected by market participants or follow a path as expected by the central bank itself. Theoretical papers such as Svensson (The instrument-rate projection under inflation targeting: the Norwegian example. Centre for European Policy Studies Working Paper (127), 2006) and Galí (J Monet Econ 58:537–550, 2011) suggest an accuracy ranking for these forecasts, from employing central bank expectations yielding the highest forecast accuracy to conditioning on constant interest rates yielding the lowest. Yet, when investigating the predictive accuracy of the Bank of England’s and the Banco Central do Brasil’s forecasts for interest rates, inflation and output growth, we hardly find any significant differences between forecasts based on the different interest rate paths. Our results suggest that the choice of the interest rate assumption appears to be of minor relevance empirically.     

Emil Lederer’s Theory of Economic Fluctuations and the Role of Financial Institutions

Abstract

Emil Lederer was characterized as the “leading academic socialist of Germany in the 1920’s” by Joseph Schumpeter and was a highly respected economist of his time. However, most aspects of his work remain totally unexplored. This paper focuses on Emil Lederer’s theory of economic fluctuations defending the thesis that certain aspects of Lederer’s conceptualization of economic fluctuations underwent considerable modifications when his 1925 article Konjunktur und Krisen is compared with his 1938 book Technical Progress and Unemployment, a shift unacknowledged so far in the literature. In his first attempt to tackle the issue, in Konjunktur und Krisen (1925), Lederer had constructed an explanation consistent with the so-called “disproportionality theory” introduced by Tugan-Baranowsky (codified as “early Lederer”). However, Lederer’s conception of the business cycle during the 1930s and especially in his major work Technical Progress and Unemployment underwent considerable modifications. Lederer’s (1938 Lederer, E. 1938. Technical Progress and Unemployment, Geneva: King and Son.  [Google Scholar]) analysis is, apparently, very ‘Schumpeterian’ (codified as “late Lederer”). In this version of his theory, the cycle is explained by supply-side factors, and more specifically by technical change. Additionally, Lederer’s view on the role of financial institutions (credit and banks) with regards to business cycles is analysed. Lederer avoided attributing a causative role to monetary factors. The interrelation between ‘real’ factors and financial institutions constitutes an essential element in his analysis of the business cycle.     

Banking theories and macroeconomics

Mainstream models that allow for financial operations are characterized by the understanding of banks as intermediaries of outside money (IOM). This approach to banks became dominant thanks to a peculiar rhetorical device by Tobin (1963 Tobin, J. 1963. “Commercial Banks as Creators of ‘Money’.”Paper 205. New Haven, CT: Cowles Foundation. [Google Scholar]). In recent years, however, this understanding is being increasingly questioned and an old view of banks as originators of inside money (OIM) is being reconsidered. The present article highlights the fundamental differences of these alternative doctrines from a money supply perspective and provides a simple theoretical argument to consider the limits of a point of view à la Tobin and regard the OIM banking theory more general than the IOM theory.     

Geography, institutions, and the making of comparative development

While the direct impact of geographic endowments on prosperity is present in all countries, in former colonies, geography has also affected colonization policies and, therefore, institutional outcomes. Using non-colonized countries as a control group, I re-examine the theories put forward by La Porta et al. (J Law Econ Org 15(1):222–279, 1999 and Acemoglu et al. (Am Econ Rev 91(5), 1369–1401, 2001. I find strong support for both theories, but also evidence that the authors’ estimates of the impact of colonization on institutions and growth are biased, since they confound the effect of the historical determinants of institutions with the direct impact of geographic endowments on development. In a baseline estimation, I find that the approach of Acemoglu et al. (2001) overestimates the importance of institutions for economic growth by 28 %, as a country’s natural disease environment affected settler mortality during colonization and also has a direct impact on prosperity. The approach of La Porta et al. (1999) underestimates the importance of colonization-imposed legal origin for institutional development by 63 %, as Britain tended to colonize countries that are remote from Europe and thus suffer from low access to international markets.     

Life‐Cycle Patterns of Interest‐Rate Mark‐Ups in Small‐Firm Finance*

We derive empirical implications from a theoretical model of bank–borrower relationships. The interest‐rate mark‐ups of banks are predicted to follow a life‐cycle pattern over the age of the borrowing firms. Because of endogenous bank monitoring by competing banks, borrowing firms initially face a low mark‐up, and thereafter an increasing mark‐up as a result of informational lock‐in, until it falls for older firms when the lock‐in is resolved. By applying a large sample of predominantly small unlisted firms and a new measure of asymmetric information, we find that firms with significant asymmetric‐information problems have a more pronounced life‐cycle pattern of interest‐rate mark‐ups. Additionally, we examine the effects of concentrated banking markets on interest‐rate mark‐ups. The results indicate that the life cycle of mark‐ups is mainly driven by asymmetric‐information problems and not by concentration. However, we find evidence that bank market concentration matters for older firms ? 2 Correction added after online publication on 20^th February 2012; the original text read ‘However, we find evidence that bank market concentration for older firms’, omitting the word ‘matters’.
     

Survival of the hippest: life at the top of the hot 100

We analyse the survival characteristics of recordings that reached the number one spot on the US popular music charts over the period 1955 to 2003. Our results show that there has been a statistically significant change in the time spent at number one since ‘album cuts’ were included in the compilation of Billboard?'s Hot 100. Survival time is significantly improved if the recording is by a female solo artist, or if it is an instrumental tune. We also find a significant ‘Elvis effect’.

‘I’ll never be a saint, it's true. I’m too busy surviving!’ (Madonna, 1994 Madonna. 1994. “Survival”. In Bedtime Stories Album, Hollywood, CA: Warner Brothers Records.  [Google Scholar])     

Impact of a comprehensive pharmacist medication-therapy management service

Abstract

Objective:

This proof of concept study aimed to determine whether a pharmacist-managed medication therapy management (MTM) program in a private endocrinologist physician’s practice reduced healthcare services utilization and related costs 6 months after patients’ discharge from an institution with a transition of care service.     

Environmental determinants of banking efficiency in Austria

The great majority of Austrian banks operate on a regional or local basis and only a few banks provide their services on a national or even international scale. Obviously, the market environments regional or local banks face are different from that of nationwide operating banks. Casual evidence suggests that local markets condition is a very important external determinant of banking efficiency. Thus, not controlling for market conditions may substantially bias the measurement of managerial efficiency particularly of locally operating banks. In this paper we assess the internal technical efficiency (or X-efficiency) of the Austrian banking sector with the focus on environmental and non-controllable factors critical to banking markets. Analytically, we apply a multiple-stage approach based on a slacks-based DEA model (SBM) and a censored regression model, respectively. In order to cope with the inherent dependency problem of DEA-based efficiency analysis when incorporated into regression analysis we apply a Bootstrap estimator. In so doing we attempt to overcome the dependency problem which plagues the power of standard regression analysis based on DEA processed data. The empirical analysis is based on an unbalanced panel of data covering more than 800 Austrian banks ranging over 1995–2002.

The biological hypothesis in cliometrics of growth: a methodological critique of Fogel (post 1982) and Ashraf & Galor (2013)

The resort to biological “analogies”, “metaphors” and “concepts” is an important aspect of the history of the relationships between economics and biology and has long been greatly controversial. This controversy continues today in the most recent work of three cliometricians, i.e. Fogel (post 1982) and Ashraf and Galor (2013). We focus on the theories of historical growth relying on biological explanations which have been formulated by these economists, from the specific angle of biological reductionism. We propose a methodological critique of their use of biological variables as determinants of the historical dynamics of economic growth. Based upon the transposition to the field of economics of Ernst Mayr’s distinction between functional and evolutionary biology and his definitions of reductionism, we argue that despite some similarities, the questions raised by Fogel’s and Ashraf & Galor’s theories are of distinct nature. Nonetheless, we stress the need for a careful examination of the biological mechanisms supporting these researches.     

Impact of initiation of asenapine on patterns of utilization and cost of healthcare resources associated with the treatment of bipolar I disorder

Abstract

Objective:

To assess the impact of initiation of asenapine on “real-world” levels of utilization and cost of healthcare services for the treatment of bipolar I disorder (BPD) in the US.     

Global Capitalism and Imperialism Theory: Methodological and Substantive Insights from Rosa Luxemburg

This paper analyses some issues raised by Rosa Luxemburg's theory of imperialism that are central to current debates on globalisation. Methodologically, despite widespread scepticism on the use of mathematics in Marxist social science, Luxemburg's rigorous analysis of Marx's schemes of reproduction forcefully shows the importance of theoretical abstraction and formal modelling. Indeed, this paper analyses Luxemburg's theory by means of an intertemporal generalisation of Roemer's (1983) Roemer, J. E. 1983. “Unequal exchange, labor migration, and international capital flows: a theoretical synthesis”. In Marxism, Central Planning and the Soviet Economy, Edited by: Desai, P. Cambridge, MA: MIT Press.  [Google Scholar] economy with a global capital market. It focuses in particular on two substantive issues: the relation between capital accumulation and imperialism, and the role of force and non-competitive distortions in imperialistic international relations. It argues that differences in development and competitive credit markets, rather than realisation problems, are important to understand the emergence of international exploitation, whereas extra-economic coercion may be important to understand its persistence.     

Rethinking liquidity creation: Banks,shadow banks and the elasticity of finance

In this article, the authors use the concept of the hierarchy of money found in the works of Minsky (2008 Minsky, H. [1986]2008. Stabilizing an Unstable Economy. New Haven, CT: Yale University Press. [Google Scholar][1986]), Foley (1987 Foley, D. 1987. “Money in Economic Activity.” In The New Palgrave: Money, edited by J. Eatwell, M. Milgate, and P. Newman, 519–525. New York, NY: W.W. Norton.[Crossref] , [Google Scholar]), Wray (1990 Wray, L. R. 1990. Money and Credit in Capitalist Economies: The Endogenous Money Approach. Aldershot, UK: Edward Elgar. [Google Scholar]), and Bell (2001 Bell, S. 2001. “The Role of the State and the Hierarchy of Money.” Cambridge Journal of Economics 25 (2):149–63.[Crossref], [Web of Science ®] , [Google Scholar]) to analyze the process of liquidity creation in modern capitalist economies where shadow banks play an active role. They abandon the narrow focus on banks as the creators of money as well as the idea that nonbank financial institutions are mere intermediaries between savers and borrowers. Instead, the authors demonstrate that, similar to banks, nonbank financial institutions and foreign banks (through their cross-border activities) create liquidity endogenously by leveraging over the liabilities of entities hierarchically above them. The authors further elucidate Kregel’s concept of “fictitious” liquidity in the context of the hierarchy of financial liabilities, distinguishing it from “true” liquidity. By bringing shadow banks and the euro-currency markets into to the pyramid of financial liabilities, they develop a more complete framework of liquidity creation in modern capitalist economies. Their “extended” pyramid is useful for analyzing not only the fragility that may arise from the interactions between firms, households and banks, but also that which may originate through the interactions between banks, shadow banks and foreign banks.     

Marx,primitive accumulation,and the impact of Sismondi

Abstract

This article re-examines Marx’s well-known concept of “primitive accumulation” in relation to Marx’s successive attempts to give a historical explanation for the birth of “capitalism”. Marx formulated this concept for the first time in Value, Price, and Profit (1865), and extrapolated upon it further in the first edition of the first volume of Capital (1867). It signified an appreciable alteration to Marx’s original historical theory. Indeed, in his writings, preceding the publication of volume 1 of Capital, such as The Communist Manifesto or The German Ideology, Marx had presented a more straightforwardly linear conception of the evolution of human society, consisting of various stages, “capitalism” being the penultimate stage, and “communism”, the last. Within this framework, the most advanced nations, such as Great Britain and Germany, were assumed to be those closest to being on the pre-revolutionary cusp of realising socialism. However, from the publication of volume 1 of Capital onwards, Marx embraced a less deterministic conception of progress, focussing more than previously on economically backwards countries or societies “at the margins” (Anderson 2010 Anderson, Kevin D. 2010. Marx at the Margins. Chicago: University of Chicago Press.[Crossref] , [Google Scholar]) and envisaging for them possibilities for historical development that did not inevitably entail the sort of industrialisation that Great Britain had experienced. This was particularly true regarding Russia, where volume 1 of Capital was welcomed and discussed precisely in light of these questions, as has been underscored by many scholars, notably Shanin, Wada, White, and Stedman Jones.     

Liquidity and the marginal value of information

We revisit Kyle’s (Econometrica 53:1315–1335, 1985) model of price formation in the presence of private information. We begin by using Back’s (Rev Financ Stud 5(3):387–409, 1992) approach, demonstrating that if standard assumptions are imposed, the model has a unique equilibrium solution and that the insider’s trading strategy has a martingale property. That in turn implies that the insider’s strategies are linear in total order flow. We also show that for arbitrary prior distributions, the insider’s trading strategy is uniquely determined by a Doob $h$ -transform that expresses the insider’s informational advantage. This allows us to reformulate the model so that Kyle’s liquidity parameter $\lambda $ is characterized by a Lagrange multiplier that is the marginal value or shadow price of information. Based on these findings, we can then interpret liquidity as the marginal value of information.     

The effect of the market-based monetary policy transparency index on inflation and output variability

This paper examines empirically the effectiveness of the Federal Reserve’s policy under different levels of transparency by using a dynamic and continuous market-based index proposed by Kia (2011 Kia, A. 2011. “Developing a Market-based Monetary Policy Transparency Index: Evidence from the United States.” Economic Issues 16 (2): 53–79. [Google Scholar]) on inflation volatility and output volatility. In theory, the more transparent the monetary policy, the less volatile the money market will be with fewer disturbances and thus the more stable will be the economy. First, a bivariate VAR-BEKK-GARCH(1,1) model is estimated for inflation and output variables in the US economy in order to produce conditional variances and covariance over the period October 1982 to December 2011. Second, by incorporating conditional variances and transparency in a VAR model, impulse response functions reveal that after a positive shock in the Federal Reserve’s transparency (i.e. market participants consider the Federal Reserve’s actions to be more transparent), there is a statistically significant decrease in both inflation volatility and output volatility. Our results reveal the dynamic and crucial role that a central bank’s transparency plays in retaining economic stability and assuring the forecasts concerning inflation and economic growth made by the economic units.     

The role of the German Historical School in the development of Mises’s thought

Hülsmann (2007) and Hayek ([1922] 1981) have argued that Mises’s first book The Development of the Relationship between Lords of Manor and Peasants in Galicia, 1772–1848 (1902) is written in the tradition of the German Historical School. Historicist contemporaries of Mises also considered his first academic work a continuation of the Knapp-Grünberg tradition (Kaser Jahrbuch für Gesetzgebung, Verwaltung und Volkswirtschaft im Deutschen Reich, 28(1), 374–79, 1904; Wimbersky, 1906). We argue that von Mises (1902) does not represent the younger German Historical School. First, Mises provides a rationalization of the history rather than ethical and cultural explanation of historical events. Second, he does not support the Knapp-Grünberg argument about the historical development of serfdom under a Slavic rule. Finally, von Mises (1902) does not adhere to the ideology of the Historical School regarding the virtues of the Prussian bureaucracy.     

Personal Income and Hierarchical Power

Abstract:

This article examines the relation between personal income and hierarchical power. In the context of a firm hierarchy, I define hierarchical power as the number of subordinates under an individual’s control. Using the available case-study evidence, I find that relative income within firms scales strongly with hierarchical power. I also find that hierarchical power affects income more strongly than any other factor for which data is available. I conclude that this is preliminary evidence for a hierarchical-power theory of personal income distribution.

Supplemental data for this article can be accessed online at http://dx.doi.org/10.1080/00213624.2019.1657746.     

The effect of capital requirement regulation on the transmission of monetary policy: evidence from Austria

This paper analyzes the role of banks’ regulatory capitalization in the transmission of monetary policy. We use a confidential dataset for Austrian banks spanning from the first quarter of 1997 to the fourth quarter of 2003. We find evidence that Austrian banks react in an asymmetric way to monetary policy depending on their regulatory excess capitalization, i.e. low capitalized banks react more restrictively to a monetary tightening than their highly capitalized peers.

Escaping the Resource Curse

According to the World Tourism Organisation (UNWTO), tourism is ‘number one in the international services trade’, accounting for 40 per cent of global trade in services and 6 per cent of total world trade.1 1. ‘Tourism – The Path Ahead’, UNWTO NEWS Year XX, Issue 3 (2006), http://www.unwto.org/newsroom/magazine/archives/news3_06_e.pdf (accessed 30 May 2007), p. 6. The tourism industry directly provides around 3 per cent of global employment, or 192 million jobs – the equivalent to one in every twelve jobs in the formal sector. The International Labour Organization (ILO) predicts that this share is likely to rise to 251.6 million jobs by 2010, or one in every eleven formal sector jobs.2 2. International Labour Organization, ‘Human Resources Development, Employment and Globalization in the Hotel, Catering and Tourism Sector’, report for discussion at the Tripartite Meeting on the Human Resources Development, Employment and Globalization in the Hotel, Catering and Tourism Sector, Geneva 2001, http://www.ilo.org/public/english/dialogue/sector/techmeet/tmhct01/tmhct-r.pdf (accessed 30 May 2007). Tourism also has an indirect impact beyond employment through tourism-related goods and services, air travel and global consumption patterns. The relevance of tourism for global political economy can no longer be ignored by analysts wishing to account for changing global patterns in poverty and inequality. Despite this, with a handful of exceptions, tourism as a significant feature of contemporary global political economy has thus far attracted little attention in the field of international political economy (IPE).3 3. See Stephen Britton, ‘The Political Economy of Tourism in the Third World’, Annals of Tourism Research, Vol. 9, No. 3 (1982), pp. 331–358; Michael Clancy, ‘Tourism and Development: Evidence from Mexico’, Annals of Tourism Research, Vol. 26, No. 1 (1999), pp. 1–20; William I. Robinson, ‘Globalisation as a Macro-Structural–Historical Framework of Analysis: The Case of Central America’, New Political Economy, Vol. 7, No. 2 (2002), pp. 221–50; Mariama Williams, ‘The Political Economy of Tourism Liberalisation, Gender and the GATS’, International Gender and Trade Network Economic Literacy Series, #4, April 2002, http://www.igtn.org/pdfs/30_TourismGATS.pdf (accessed 30 May 2007). Achieving United Nations (UN) specialised agency status in November 2003, UNWTO is the only international institution existing solely to promote the spread of the tourism industry across the globe.4 4. Address by Francesco Frangialli, Secretary-General of UNWTO, to the fifty-eighth Session of the United Nations General Assembly', New York, 7 November 2003, http://www.unwto.org/newsroom/speeches/2003/disc_sg_ag_nu_7nov03_A4.pdf (accessed 30 May 2007). Its role can be understood in a number of ways: as a campaigning organisation for the tourism industry; as a donor for tourism development projects; and as the primary source of research and statistics on global tourism.

As a result of the macroeconomic developmental benefits to be gained from the tourism industry – including employment and foreign exchange generation – a growing number of countries are generating ‘national tourism development plans’, in which tourism is seen as the foundation of a country's development.5 5. This essay draws on the author's extensive interviews with tourism development policy makers, tourism workers, private-sector representatives and civil servants in Central America. Playing a consultancy role in such strategies, UNWTO needs to be taken seriously not merely as an industry-specific UN agency, but as an organisation with the ability to influence national and international development policy, albeit within the confines of the dominant development paradigm. This essay introduces the UNWTO by analysing the emergence, structure and scope of the organisation. A review of the organisation's activities identifies two key aims that guide the institution: tourism as a tool for poverty reduction and development, and the further liberalisation of the tourism services sector. ‘Tourism development’ as framed by UNWTO is presented as a problematic process, because of the potential conflict between poverty reduction and liberalisation of the tourism industry.     

Second contribution to the ENE critique: Reply to Davidson,part 1

On first encounter, the ergodic/nonergodic (ENE) approach has apparent plausibility. Although concerned by some of its problems for many years, it was only after more concentrated reflection on both its parts and their combinations that I became aware of its manifold deficiencies, some of which I outlined in my previous critique (O’Donnell, 2014 ———. “A Critique of the Ergodic/Nonergodic Approach to Uncertainty.” Journal of Post Keynesian Economics, 2014, 37 (2), 187–209.[Web of Science ®] , [Google Scholar]). In this paper, facilitated by Davidson’s (2015b ———. “A Rejoinder to O’Donnell’s Critique of the Ergodic/Nonergodic Explanation of Keynes’s Concept of Uncertainty.” Journal of Post Keynesian Economics, 2015b, 38, 1–18.[Taylor & Francis Online], [Web of Science ®] , [Google Scholar]) rejoinder, these criticisms are deepened, broadened, and strengthened. Because the debate deals with fundamental matters in several disciplines, a considerable amount of investigation, unpacking, and logical dissection is required to clarify the argumentation beneath the compressed and seemingly smooth surface of the ENE position. For this reason, my reply is divided into two parts. This contribution primarily examines the central role of framing in ENE arguments, and clarifies the various misunderstandings and misrepresentations to which it leads. The subsequent contribution provides more detailed discussion of mathematical, stochastic, and methodological issues.