Government Purchases, Government Transfers, and the Post-1970 Slowdown In U.S. Economic Growth

This article shows that the post-1970 slowdown in U.S. economic growth can be explained by a shift in fiscal policy away from government purchases and toward transfer payments. Two endogenous growth models that include government purchases and transfers imply a relationship between these variables and long-run growth. Empirically, the simultaneous decline in the fraction of output purchased by federal, state, and local governments and rise in transfer payments around 1970 dramatically overpredict the growth slowdown of the early 1970s. The growth rate is predicted to have risen in the absence of this change in fiscal policy.     

The Intertemporal Relation Between the U.S. and Japanese Stock Markets

This paper finds a high correlation between the open to close returns for U.S. stocks in the previous trading day and the Japanese equity market performance in the current period. In contrast, the Japanese market has only a small impact on the U.S. return in the current period. High correlations among open to close returns are a violation of the efficient market hypothesis; however, in trading simulations, the excess profits in Japan vanish when transactions costs and transfer taxes are included.     

A contingent-claim integration of cost-volume-profit analysis with capital budgeting*

Abstract. This paper integrates cost-volume-profit (CVP) analysis into the theory of capital budgeting by modeling the profit function in the CVP relation as put and call options on sales revenue. Such an approach is shown to be particularly useful when the profit function is piecewise linear, such as when there are multiple break-even points, or when the profit function is truncated. The results are of general applicability because such an approach does not require making assumptions about the decision maker's risk attitude. This claim is proven by showing that certain well-known decision models in the extant literature can be derived as specific cases from the results. The paper also shows how the CVP analysis can be extended to the case in which there is a dependence of the firm's cash flows on macroeconomic variables. Specifically, it applies to the CVP analysis the state-contingent claim approach to capital budgeting of Banz-Miller (1978) and relates the option valuation approach to Banz and Miller's framework. A numerical example using the state prices of Banz-Miller is provided. Résumé. Les auteurs associent l'analyse coût-volume-profit (CVP) à la théorie de l'établissement du budget des investissements en intégrant la fonction de profit dans l'interaction CVP à titre d'option de vente et d'achat sur le produit des ventes. Cette methode semble particulièrement utile lorsque la fonction de profit est linéaire mais morcelée. Il en ainsi, par exemple, lorsqu'il existe plusieurs seuils de rentabilité ou lorsque la fonction de profit est tronquee. Les résultats peuvent êtres généralisés puisqu'une méthode de ce genre n'exige pas la formulation d'hypothèses relatives à l'attitude du décideur à l'egard du risque. Cette affirmation est étayée par les auteurs qui montrent que certains modèles décisionnels bien connus dans la documentation existante peuvent être dérivés des résultats obtenus sous forme de cas précis. Les auteurs montrent également comment l'analyse coût-volume-profit peut être étendue au cas où les flux monétaires de l'entreprise dépendent de variables macroéconomiques. De façon précise, ils appliquent à l'analyse coût-volume-profit la méthode des créances conditionnelles à un état proposée par Banz et Miller pour établir le budget des investissements, et ils relient la méthode d'évaluation de l'option à la formule de Banz et Miller. Les auteurs proposent un exemple numérique dans lequel ils recourent aux prix de l'état de Banz-Miller.     

Explaining House Price Dynamics: Isolating the Role of Nonfundamentals

This paper examines the role of nonfundamentals‐based sentiment in house price dynamics, including the well‐documented volatility and persistence of house prices during booms and busts. To measure and isolate sentiment's effect, we employ survey‐based indicators that proxy for the sentiment of three major agents in housing markets: home buyers (demand side), home builders (supply side), and lenders (credit suppliers). After orthogonalizing each sentiment measure against a broad set of fundamental variables, we find strong and consistent evidence that the changing sentiment of all three sets of market participants predicts house price appreciation in subsequent quarters, above and beyond the impact of changes in lagged price changes, fundamentals, and market liquidity. More specifically, a one‐standard‐deviation shock to market sentiment is associated with a 32–57 basis point increase in real house price appreciation over the next two quarters. These price effects are large relative to the average real price appreciation of 71 basis points per quarter observed over the full sample period. Moreover, housing market sentiment and its effect on real house prices is highly persistent. The results also reveal that the dynamic relation between sentiment and house prices can create feedback effects that contribute to the persistence typically observed in house price movements during boom and bust cycles.     

Insider employee stock option trading and stock prices

The question of which factors determine corporate bonds pricing is investigated by analysing the spreads of eurobonds issued by major G-10 companies during the 1991–2001 period. Three main results emerge from the analysis. First, bond ratings appear as the most important determinant of yield spreads, with investors’ reliance on rating agencies judgments increasing over time. Second, the primary market efficiency and the expected secondary market liquidity are not relevant explanatory factors of spreads cross-sectional variability. Finally, rating agencies adopt a different, ‘through the cycle’, evaluation criteria of default risk with respect to the forward looking one adopted by bond investors.     

Human Nature from a Catholic Perspective

Catholic views on personhood and human nature include emphasis on the dignity of each person, from womb to tomb. The claims made for this inviolable dignity invariably stem from the recognition that all human beings, regardless of their state of dependency, are made in the image of God and are thus the bearers of certain moral rights. But in our fallen state that image is wounded and needs to be repaired. Hence, Christians need to learn to recapitulate the life of Christ in their own lives by growing through the stages of human life according to the model that He presents to us. There are not only individual but corporate aspects to this growth. Catholic Social Teaching offers insights on the corporate and social condition in which we find ourselves. It has a healthy respect for the economic laws of the market and for the technical intricacies of efficient decision‐making processes in local, national, and world economies, but out of respect for human nature there are moral norms that need to be respected and that may never be violated. On the topic of property and private ownership, considerable attention is given to the very purpose of private property (namely, to provide individuals with a kind of independence that enhances their ability to do their duties to their dependence and that extends their freedom). But always correlated with this defense of private property is a sense of the social demands on private property that come from the common good and the communal purpose of all earthly goods.     

Identification of technological structures using patent statistics

This paper studies the use of patent statistics in identifying four aspects of technological structure, namely, the potential knowledge pool, cumulativeness, inter-firm homogeneity in technology levels, and the scope of innovations. The firms are sampled from the chemical (CHEM), the computer (COM) and the electrical and electronic (EE) industries worldwide. Using the proxies defined, we find that (i) the contributions of intra-industry spillover are low, at 12%, 10%, and 9% for the three industries respectively; (ii) they can internalize 15%, 19% and 13% of their previous research efforts respectively; and (iii) a positive relationship between knowledge spillover and technology overlap, and between scope of innovation and number of patents being cited in future.