The Performance of Service Industries in Canada: A Real Value Analysis

The performance of service industries in Canada has been lower than that of good industries over the last four decades, with noticeable exceptions such as for railways and telecommunication carriers. Service industries were less economically (and technically) efficient in that they generated less output value (quantity) per hour worked (level and growth) or per combined unit of labour and capital (multifactor productivity growth) than good industries. The relative output price of services declined slightly over time compared with goods. At the disaggregated level, changing relative output prices were substantial and proved to be an important factor explaining the relative satisfactory economic performance of many service industries despite their low technical performance. Nevertheless, the output share of service industries increased over that period, sustained, mainly, by the growing recourse of all firms to outsourcing of services.     

Do interventions in foreign exchange markets modify investors' expectations? The experience of Japan between 1992 and 2004

The purpose of this paper is to analyze the impact of the Bank of Japan's official interventions on the JPY/USD parity during the period 1992–2004. The novelty of our approach is to combine two recent advances of the empirical literature on foreign exchange interventions: (i) drawing on over-the-counter option prices to characterize more precisely the distribution of market expectations; (ii) redefining interventions in terms of events as they tend to come in clusters. Moreover, in order to deal with the features of the data (small sample size, non-standard distribution), we use bootstrap tests.We show that interventions have a significant impact on the mean expectation (the forward rate). The results are more ambiguous for variance. Additionally, we find that the effect of interventions on skewness is significant, robust to different definitions of skewness, and consistent with the direction of interventions. On the contrary, our results clearly show that kurtosis is not affected by interventions. We finally show that: (i) coordination increases effectiveness of interventions; (ii) results are not altered when controlling for other economic and political news.     

Dutch housing allowances: social housing at risk

This article deals with the vulnerability of the Dutch housing allowance scheme. This scheme can be compared with the British housing benefit. The vulnerability of the scheme has been augmented by the current less favourable economic conditions (stagnating household incomes, increasing unemployment) and the Dutch government's announcement that it plans to reduce housing allowance expenditure. Two scenarios are outlined, which may serve to resolve the danger of exploding housing allowances expenditure in the coming years. If a market‐led scenario is chosen, whereby housing associations strive to achieve market rents, the housing allowance will be transformed into a form of housing voucher, the value of which is not directly related to the actual rental price of the property. In this American‐style model, the value of the vouchers would be linked to a ‘virtual’ rent, say 40% of the average rental price in the region. The housing associations would then lose their special semi‐public status. Under the social housing model, the housing associations would retain their special status provided they aimed to achieve rents somewhat lower than the market level. The housing allowance would remain directly linked to the actual rental price. However, some marked changes would be required to render this system sustainable. The Netherlands cannot avoid having to make this choice. Cet article porte sur la vulnérabilité du régime hollandais d'aide au logement. Celui‐ci est comparable aux prestations britanniques. La fragilité du régime a été accrue par les conditions économiques actuelles moins favorables (stagnation du revenu des ménages, augmentation du chômage) et par l'annonce du gouvernement néderlandais relative à la réduction prévue des dépenses d'allocation‐logement. Sont présentés deux scénarios susceptibles de limiter le risque d'explosion des dépenses d'allocations dans les années à venir. Si l'option choisie est un scénario de marché où les associations pour le logement luttent pour atteindre les loyers du marché, l'allocation‐logement se transformera en ‘bon’ dont la valeur ne sera pas directement liée au montant réel du loyer. Selon ce modèle de type américain, la valeur des ‘bons’ sera fonction d'un loyer ‘virtuel’, soit environ 40% du prix moyen dans la région; les associations perdraient alors leur statut particulier semi‐public. Selon le modèle de logement social, elles conserveraient leur statut, à condition qu'elles cherchent à atteindre des loyers légèrement inférieurs au niveau du marché; l'allocation‐logement serait alors directement liée au montant réel du loyer. Toutefois, pour que le régime subsiste, il faudrait procéder à d'importants changements. Les Pays‐Bas ne peuvent s'épargner ce choix.     

Golden Parachutes: Incentive Aligners,Management Entrenchers,or Takeover Bid Signals?

In this paper we investigate the effect of golden parachute (GP) adoptions on shareholder wealth. We control for the potential effect a GP adoption has on the probability that a firm will receive a takeover bid by investigating the wealth effects for firms that are in play when the GP is adopted. We find that announcements are wealth neutral when firms are in play and wealth increasing when firms are not in play when a GP is adopted. The results suggest that GPs have no influence on the success of a tender offer, refuting the hypotheses that they either align manager and shareholder interests or that they entrench inefficient managers. The difference in the results for in-play and not-in-play firms is consistent with the hypothesis that GPs signal an increased likelihood that a firm will receive a takeover bid.     

Sustaining Collusion in Growing Markets

The impact of demand growth on the collusion possibilities is investigated in a Cournot supergame where market growth may trigger future entry and the collusive agreement is enforced by the most profitable ‘grim trigger strategies’ available. It is shown that even in situations where perfect collusion can be sustained after entry, coping with a potential entrant in a market which is growing over time may completely undermine any pre‐entry collusive plans of the incumbent firms. This is because, before entry, a deviation and the following punishment phase may become more attractive thanks to their additional effect in terms of delaying entry.     

Assessing Applied Protection across the World*

This paper presents MAcMap–HS‐6, a database providing a consistent, ad valorem equivalent measure of tariff duties and tariff rate quotas for 163 countries and 208 partners, at the six‐digit level of the Harmonized System (5111 products), accounting for all preferential agreements. We describe the methodology used to compute and aggregate an ad valorem equivalent of applied protection. Emphasis is placed on minimizing the endogeneity bias in the aggregation procedure, while acknowledging structural differences in export specialization. The resulting quantitative assessment is illustrated by giving an overview of applied protection across the world in 2001, in terms of average as well as distribution.     

THE ECONOMETRICS OF THE HOLY GRAIL — A REVIEW OF ECONOMETRICS: ALCHEMY OR SCIENCE? ESSAYS IN ECONOMETRIC METHODOLOGY

Books reviewed in this article: David F. Hendry (1993) Econometrics: Alchemy or Science? Essays in Econometric Methodology     

Financial Reform after the Crisis: An Early Assessment

Financial reform has been a core dimension of the initial global policy response to the financial turmoil of 2007-08.At the first G-20 summit of heads of state and government in November 2008,more than four-fifths of the action points in the final declaration were about financial regulation.Obviously,the crisis is not over at the time of writing,and the cycle of financial reform it triggered is very far from complete.But it can be said confidently that the crisis has been transformational for financial regulatory policy,at least in the United States and Europe.