The monetary base or M1? results from a small macromodel

This article investigates the issue of whether M1 or the monetary base should be used as an intermediate target for monetary policy. Because the target variable should be reliably related to future economic activity, each aggregate is used in estimating a small macromodel which consists of a nominal GNP growth equation and an inflation specification. The empirical results indicate that M1 better explains GNP growth and inflation for the period 1960–1980. Forecast errors of GNP growth from 1970–1980 are reduced when M1 is used instead of the adjusted base, although there is little difference between inflation forecasts. Based on the evidence presented in this study, M1 is preferred as the intermediate target variable.     

Bottom Marx

Much of the economic analysis published in recent years has been Marxist in flavour. The publication of a dictionary of Marxist thought offers a guide to its various schools. Chris Tame dissects the contrasting interpretations of its numerous contributors.     

GAINS TO BIDDER FIRMS IN CASH AND SECURITIES TRANSACTIONS

This paper presents empirical test results of alternative hypotheses regarding differences in returns to shareholders of bidding firms that choose different payment methods (cash or securities). The evidence is consistent with the payment method signaling hypothesis, which asserts that when management of the bidding firm believes its own stock to be overvalued (undervalued), securities (cash) will be the preferred payment method. The results are not consistent with either the overpayment hypothesis or the present value/hubris hypothesis. The findings also explain the conflicting results reported in prior work on gains to bidding firms.     

ADAM SMITH: TWO LETTERS TO HENRY BEAUFOY, MP

This article prints two hitherto unknown letters by Adam Smith to Henry Beaufoy (1750-95), MP for Great Yarmouth, concerning legislation that beaufoy and William Pitt had promoted. In the first letter (14 November 1786) Smith comments on changes to existing customs and exicese regulations(26 Geo. III c.49 and c.59), and implicitly takes some credit for legislation concerning the hering fishery (25 Geo. III c.65, 26 Geo. III c.81, 27 Geo. III c.10). In the second letter (29 January 1787) Smith expresses considerable pessimism about the philanthropic proposals of the British Fisheries Society to build fishing villages in the Highlands and Islands of Scotland.     

HOW MANY SMALL FIRMS ARE ENOUGH?

Individual investors are undiversified, holding on average less than four securities in their personal portfolios. The small firm literature focuses on CAPM (systematic risk, full diversification concept) premia, and the actual performance of small firm portfolios held by investors is overstated because of the presence of unsystematic risk. This paper illustrates the magnitudes of total risk for small and large firms, and the behavior of such measures as portfolio size is altered. Small firms contain more risk as shown by the finding that a diversified portfolio of small firms has greater variability than a single, typical large firm. While small firms outperform large firms, investors should be aware of the implications for small firm undiversified portfolios. Because small firms contain large amounts of unsystematic risk, diversification is important if investors are going to capture the small firm premia reported in the literature.