OPTIMAL MONETARY POLICY AND ASSET PRICE MISALIGNMENTS

This paper analyses the relationship between monetary policy and asset prices in the context of optimal policy rules. The transmission mechanism is represented by a linearized rational expectations model augmented for the effect of asset prices on aggregate demand. Stabilization objectives are represented by a discounted quadratic loss function penalizing inflation and output gap volatility. Asset prices are allowed to deviate from their intrinsic value due to momentum trading. We find that in the presence of wealth effects and inefficient markets, asset price misalignments from their fundamentals should be included in the optimal interest rate reaction function.     

MACROECONOMIC EFFECTS OF THE 1986 OIL PRICE DECLINE

The oil price decline during 1986 sparked a renewed debate over how oil price changes affect the economy and whether the effects of oil price declines are equal and opposite those of oil price increases. This article reviews theoretical and more casual arguments concerning this issue and describes some tests rejecting the hypothesis that the effects of oil price declines are asymmetric to those of oil price increases.     

OIL PRICE VOLATILITY AND U.S. MACROECONOMIC PERFORMANCE

This study uses a model with explicit energy sector linkages to estimate the macroeconomic impacts of the 1986 collapse in energy prices. The model combines features of neoclassical macroeconomics to estimate final demand spending and of general equilibrium analysis to estimate substitution possibilities. The model allows price and wage rigidities yet permits interfuel and input substitutions. The simulation results suggest three conclusions. First, the most significant macroeconomic impact of the 1986 oil price reduction is the sharp drop in inflation. Second, output and employment gains are relatively small due to the sharp drop in energy sector output. Finally, the estimated gain in real output due to lower energy prices is close to the output loss resulting from the trade deficit increase during 1986. This may be one reason why no substantial increase in economic growth occurred following the 1986 collapse in energy prices.     

INEFFICIENT INFORMATION AGGREGATION AS A SOURCE OF ASSET PRICE BUBBLES

This paper presents a new theory of bubbles, or discrepancies between the market clearing price and the fundamental value of an asset. In our setting, Bayesian traders, oriented towards long-term gains, receive private information ('news') and also make inferences from noisy price signals. Price exhibits higher variance than fundamental value (the latter defined as fully-aggregated expected value) especially when news is informative but infrequent. The corresponding bubbles are self-limiting but may exhibit momentum and overshooting. A parametric example, involving the exponential/gamma conjugate families, is provided.
We don't have any penetrating explanations of yesterday's stock market, but we certainly believe that stocks do not fall 86½ points for nothing.
The general case for a drop in the market after its recent record highs is clear enough. The Fed…,… the tax bill.
None of this, though, was any different on Thursday than it was with the market at its peak six sessions ago. News…and rumors yesterday…were certainly negative but scarcely dramatic.
Some market pros believe this kind of a drop is merely the market catching up with what it already knew. We doubt it. Our hunch is that something changed between Wednesday and Thursday, and that eventually we'll learn what it was ( Wall Street Journal Editorial, Friday, September 12, 1986).     

THE MEASUREMENT OF CHANGES IN QUALITY

This paper is concerned with the theoretical problems of devising indexes of quality change and with some of the practical problems of constructing such indexes from market data, relating these to the various attempts to construct such indexes in the past. The general conclusion is that, while quality is inherently ordinal, there are three different indexes which might be taken as "measures" of quality change. If changes are sufficiently small, the values of all three indexes will coincide and then, only, can we consider any one of them to be an unambiguous measure of the change.     

THE MEASUREMENT OF CONSTANT PRICE AGGREGATES IN CANADA*

This paper is in part directed towards a partial examination of Canadian concepts and methods used in the deflation of constant price estimates of gross domestic product from both an expenditure and industry-of-origin point of view, and in part toward certain problems arising in the development of a conceptually balancing set of accounts in real terms. It also provides reference material to allow the reader to pursue the detailed methodology and data underlying the Canadian constant price accounts.     

A MACROECONOMIC PERSPECTIVE OF AFTA'S PROBLEMS AND PROSPECTS

The Association of Southeast Asian Nations (ASEAN) and the impressive economic performance of most of its members have increased the weight of the region's views in world fora. However, ASEAN has been unsuccessful in fostering a regional integration arrangement (RIA) leading to an increase in intraregional trade and foreign direct investment. In January 1992, ASEAN launched the Asean Free Trade Area (AFTA) seeking to establish a free trade area (FTA) by 2008.
Market integration increases economic interdependence and thereby raises the need for policy integration and discipline. This paper argues that a number of difficulties that ASEAN faced in promoting intraregional trade are likely to continue to affect AFTA (e.g., low economic complementarity and macroeconomic imbalances requiring large changes in equilibrium real exchange rates). The experience of other RIAs suggests other potential problems.
AFTA's prospects of evolving into deeper forms of sustainable integration are remote. Some cooperation in areas of common interest seems likely.     

THE MEASUREMENT OF CAPITAL THROUGH A FIXED ASSET ACCOUNTING SIMULATION MODEL (FAASM)

In this article the author describes a method of estimating the capital stock of the corporate sector which is being developed at Statistics Canada. The method uses a "Fixed Asset Accounting Simulation Model" or FAASM. FAASM provides estimates of the capital stock by inferring the actual service lives of fixed assets, and using these with price indexes to revalue assets on a constant price basis. FAASM is thus an alternative to the widely used Perpetual Inventory Method. By also inferring accounting lives using the depreciation accounts, it has other important outputs. These latter get only passing mention here. Since FAASM exploits the available data in a comprehensive, systematic way, its service life and capital stock estimates may eventually, after system development and improvement in operation, approach the limits of attainable accuracy.     

THE PROFITABILITY OF COLONIAL INVESTMENT

This paper develops a model for studying colonial investment in which the metropolitan government restricts the amount of investment in the colony in order to maximize the net profits earned in the colony. The model explicitly includes the threat of subversive activity by the indigenous colonial population. The analysis suggests why historically some countries but not others became colonies and why many colonies that were initially profitable subsequently become unprofitable and were abandoned. The model also has implications for the amount of investment in colonies, the allocation of indigenous colonial labor between production and subversive activity, and the distribution of income between colonial firms and the indigenous population.     

PRICE AND WELFARE EFFECTS OF OLIGOPOUSTIC MERGERS

When oligopolists merge, the new firm enjoys a lower cost structure than any of its premerger constituent parts. This is because of rationalization economies which are created as facilities previously operated at disparate marginal cost levels come under common control. The resultant price-decreasing force is countered by the loss of competition due to the merger. The latter can stem not only from reduction in the number of competitors, but also from the possibility that, with a more concentrated market structure, firms'conjectures about each others'reactions will move in the direction of being more cooperative. The paper shows that, under normal conditions, the effects of diminished competition outweigh those of rationalization so that a price increase will result from the merger. In addition, the equivalence of merger to the imposition of taxes is exploited to derive a market-share based test for mergers to cause welfare decreases. This complements a test proposed by Farrell and Shapiro that works only for welfare increases.     

土地价格和享乐评价方法

本文介绍了享乐价格理论的基本模型及享乐价格函数的估计（包括自变量的选择、自变量和因变量资料的收集及函数形式的选择）,结合我国的具体情况,讨论了享乐方法的应用可能性。为了进一步明确享乐方法应用条件,讨论了享乐方法应用的前提假设,最后,作者认为享乐方法可以成为城市地价评估的手段之一。     

EFFECTS OF PRICE AND AVAILABILITY ON ABORTION DEMAND

Over 1.5 million legal abortions were performed in the United States in 1988. State-level regulation affecting the price or availability of abortion services may expand given recent Supreme Court decisions. This paper uses state-level data pooled over time to estimate abortion demand. Using single cross-sections of state data, past studies find abortion demand per 1,000 pregnancies to be price inelastic and find income elasticity to be positive and significant. The analysis here shows that price elasticity estimates in a single cross-section are sensitive to the choice of state characteristics used to control for "abortion attitudes" within a state. Ajixed-efects model design with pooled data gives more robust abortion demand price elasticity estimates. The results suggest that any new state regulations that increase the costs of obtaining abortions will reduce abortion use and increase unintended fertility .     

FISCAL POLICY AND ASSET PRICES

We analyse the impact of fiscal policy on asset prices using a panel vector auto‐regressive (PVAR) approach and quarterly data for ten industrialized countries. We find that positive fiscal shocks lead to a temporary fall in stock prices and a gradual and persistent decrease in housing prices. The empirical findings also point to: (i) a contractionary effect of fiscal policy on output in line with the existence of crowding‐out effects and the deterioration of credit conditions; (ii) a weakening of the effectiveness of fiscal policy in recent times; (iii) a more persistent response of asset prices for countries with a lower degree of openness; (iv) a larger impact of fiscal policy on asset prices for small countries; (v) a close link between the responsiveness of asset prices to fiscal policy and the government’s size; (vi) an increase of the sensitivity of asset prices to fiscal policy shocks following the process of financial deregulation and mortgage liberalization; and (vii) significant fiscal multiplier effects in the context of severe housing busts. Finally, the evidence suggests that changes in equity prices may help governments towards consolidation of public finances.     

COLLATERAL REQUIREMENTS AND ASSET PRICES

Many assets derive their value not only from future cash flows but also from their ability to serve as collateral. In this article, we investigate this collateral premium and its impact on asset returns in an infinite‐horizon general equilibrium model with heterogeneous agents. We document that borrowing against collateral substantially increases the return volatility of long‐lived assets. Moreover, otherwise identical assets with different degrees of collateralizability exhibit substantially different return dynamics because their prices contain a sizable collateral premium that varies over time. This premium can be positive even for assets that never pay dividends.