New Products and Financial Risk Changes

The historic focus of new products research has been on the ability of new products to enhance the profitability and competitive position of the innovating firm. In this article, Timothy Devinney shows that there exists an overlooked and potentially significant side effect associated with new product innovations: financial risk changes. He reports that significant financial risk changes occurred in approximately 50% of the new product announcements he examined. The magnitude of these financial risk changes translates into overestimates or underestimates of the firm's cost of capital by 17% to 18% and is strongly and positively related to the size of the firm and the firm's new product innovation activity.     

Financing budget deficits in the Netherlands

Summary In The Netherlands public debt management is in the hands of the budgetary policy-maker, whose recourse to the capital market can exceed or fall short of the total borrowing requirement in order to absorb or create liquidity. The conduct of that policy since the early 1960's is analyzed in this paper, emphasizing the importance of medium-term control over the public finances as a prerequisite for the ability of debt management to make a flexible contribution to monetary policy. During the 1960's this condition was satisfied and debt management followed a stable countercyclical pattern which, however, was abandoned after the early 1970's as the public finances swung into substantial disequilibrium.The author thanks J. Boughton, L. Bovenberg, D. Hendry, P. Masson, J. Muellbauer, and the referees for comments on earlier versions. However, the views expressed are his alone and do not necessarily represent those of the International Monetary Fund.     

Fiscal sustainability and solvency: theory and recent experience in Indonesia

A major challenge for Indonesian economic policy makers is to avoid the recurrence of conditions that could trigger a new economic crisis. One of the important dimensions of this challenge will be to conduct fiscal policy in a way that is sustainable, given the level of interest rates and the rate of growth of the economy. This paper synthesises various approaches to the measurement of fiscal sustainability that have appeared in the economic literature, relates these measures to the fundamental concept of fiscal solvency, and applies the framework to Indonesia over the period 1991–2003. The domestic and foreign debt positions of the central government are treated separately, to capture the influence of exchange rate changes on the relative costs of domestic and foreign borrowing. The empirical analysis indicates that Indonesia has met the fiscal sustainability criterion in recent years, except when the rupiah has depreciated heavily.     

Average Monotonic Cooperative Games

A subclass of monotonic transferable utility (T.U.) games is studied: average monotonic games. These games are totally balanced. We prove that the core coincides with both the bargaining set à la Davis and Maschler and the bargaining set à la Mas-Colell. To obtain this result a technique based on reduced games is used. Journal of Economic Literature Classification Number: C71     

Contract modifications and the basis behavior of live cattle futures

The purpose of this study was to assess the basis behavior of the Live Cattle Futures contract at the Chicago Mercantile Exchange (CME) before and after the 1995 contract changes. Additionally, an alternative method of basis calculation utilizing weighted mean futures prices versus settlement futures prices was compared to determine which method provides a better representation of the basis level. Within a regression model with heteroskedascity error framework, we found that the level of nearby basis in the period after June 1995 has shifted lower and the average monthly open interest of net commercial long positions has substantially increased after the contract modifications. These empirical results are consistent with the notion that more long activity entered the market in response to the contract modifications. Additionally, an alternative (new) measure of basis calculation (cash price minus weighted mean futures price) produced similar results to two other commonly used measures. In conclusion, the 1995 contract changes have neither increased nor decreased the volatility of live cattle basis. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:557–590, 2004