Modeling and predicting the development of the CES of Russia,Belarus, Kazakhstan,and Ukraine

The paper describes new approaches to the prediction of integration processes in the post-Soviet space and to the macroeconomic evaluation of the integration effect with the use of a cross-country model of structural interactions.     

Restrictive Practices in South Africa's Labour Market

Dr Stanley Siebert, of the University of Birmingham, complements Professor Williams' analysis with a detailed history of the measures South African whites have adopted to safeguard their privileged position in the South African economy.     

The limits on bond financing of government deficits under pptimal fiscal policy

Limits on perpetual bond financing of deficits without increased taxation or inflation are analyzed by juxtaposing the bond creation rate against the interest rate on bonds and the economy's growth rate. Sargent and Wallace (1981) and Barro (1976) argue that the bond creation rate must be smaller than the economy's growth rate. McCallum (1984) finds that the bond creation rate can exceed the economy's growth rate but must be smaller than the interest rate. McCallum's conclusion obtains under lump-sum taxation. We show that if lump-sum taxation is not feasible the bond creation rate cannot exceed the economy's growth rate. It is not possible to substitute bond financing for distortionary taxation in order to improve the level of welfare indefinitely.     

Option Pricing in ARCH-type Models

ARCH models have become popular for modeling financial time series. They seem, at first, however, to be incompatible with the option pricing approach of Black, Scholes, Merton et al., because they are discrete-time models and possess too much variability. We show that completeness of the market holds for a broad class of ARCH-type models defined in a suitable continuous-time fashion. As an example we focus on the GARCH(1,1)-M model and obtain, through our method, the same pricing formula as Duan, who applied equilibrium-type arguments.     

The Politicisation of Banking

Growing government intervention in the international currency markets has distorted incentives and disguised risks. Rodney Atkinson, formerly an economist with Grindlay's Bank, argues that increasing state interference has led bankers to respond to political, not commercial, signals. Many bankers are now rewarded according to their ability to 'work the system' rather than for economic expertise.     

Inflation,Translation and Conflicts in Statements of Financial Accounting Standards*

This paper utilizes the concept of aggregative consistency defined in Rubinstein and Fishburn [1986], and the FASB's concept of representational faithfulness to evaluate foreign currency translation and accounting for changing prices as embodied in SFAS 70. The paper shows that SFAS 70 produces measurement errors and creates a foreign currency translation adjustment which does not reflect the effects of exchange rate changes. The conditions defined in the paper also facilitate an evaluation of the relative merits of restate/translate and translate/restate. Restate/translate can conceivably be used if there is no consolidation. In the more usual case where consolidation is required, translate/restate using the relevant shareholders' consumption index will yield aggregatively consistent values under fewer restrictive conditions.