The growing shadow economy: Implications for stabilization policy

Not only has the shadow economy obviously been growing much more rapidly than the official economy in the Western industrialised countries, it also appears to have a growth cycle of its own, running counter to the official economy's growth cycle. This raises a number of important questions for stabilization policy.     

Creative Destruction and Human Resources

Discussion about demography of firms and industries is asking not only for the entity of organizations but also for processes of entry and exit. Changes and shifts in the overall structure of enterprises are very often regarded as reflections of market forces which are leaded by company strategies and their management elites. Too less attention is paid to some overall trends in which deaths and births of firms are embedded. The paper tries to discuss some developments in the structure of the labour force which are regarded as an autonomous interpretation scheme for new occupations, markets and firms. The secular sectoral transformation towards the service sector is connected to the course of productivity which provides in itself the breeding ground for new organizations. Analysing long-term social and economic changes is one of the necessary perspectives to understand recent trends in economy and society and to arrive at a better understanding of future developments. The argument in the paper is a conceptual one which is highlighted by empirical observations. Evolutionary processes of creative destruction must be understood best by an integrated interdisciplinary approach including different aspects of market formations and socioeconomic dimensions such as labour market trends, social stratification issues and life-style elements.     

Joint Adjustment of House Prices, Stock Prices and Output Towards Short‐run Equilibrium

A dynamic IS‐LM model including houses and stocks as additional assets will be analysed in this paper. Providing also housing services, a major consumption item for most households, houses create an additional link between the monetary and the real sector, distinct from the traditional wealth effect channel. We analyse the adjustment path of output, house prices and stock prices after policy shocks within a rational expectation setup. Depending crucially on the elasticity of housing services demand, different reaction patterns of asset prices will emerge. The results are contrasted with relevant empirical findings, particularly Lastrapes (Journal of Housing Economics, 11 (2002), pp. 40–74), leading to the identification of plausible elasticity ranges. The analysis sheds new light on the ongoing discussion about demand effects from changing real estate wealth and about determinants of house price fluctuations.     

Socialism in Africa

The failure of Marxist-Leninist socialism, which has become clearly apparent during the past year, has done undeniable harm to the worldwide appeal of “socialism”. Even concepts of socialism which had always expressly set themselves apart from “real-world socialism” in the Stalinist mould are also affected. The following article analyses the situation in sub-Saharan Africa.     

Privatization and Development

Many of the problems of privatization in developing countries result from the lack of information about the situation of the economy and from the lack of determination on their path of privatization. This paper addresses the lack of information by presenting a theory of incomplete privatization contracts. It then turns to the lack of determination, dealing with particular problems of partially privatized firms and, finally, postulating an elaborate system of price regulation of privatized monopolies, which typically is missing in developing countries.     

A Note on the Stability of Lognormal Interest Rate Models and the Pricing of Eurodollar Futures

The lognormal distribution assumption for the term structure of interest is the most natural way to exclude negative spot and forward rates. However, imposing this assumption on the continuously compounded interest rate has a serious drawback: rates explode and expected rollover returns are infinite even if the rollover period is arbitrarily short. As a consequence, such models cannot price one of the most widely used hedging instruments on the Euromoney market, namely the Eurodollar futures contract.
The purpose of this note is to show that the problems with lognormal models result from modeling the wrong rate, namely the continuously compounded rate. If instead one models the effective annual rate these problems disappear.     

On the road towards progress?

A decisive new era of development opens for India. It will be largely for a woman, Indira Gandhi, whose triumph In the March elections for the central parliament was acclaimed so enthusiastically, to give it her imprint.