A simple analytical model of the adverse real effects of inflation

Abstract

The essential insight advanced in this paper is that the claim that inflation can impair growth makes most sense in the context of a monetary production economy, wherein a role for money in the determination of real activity is posited from the very start. We construct a model of inflation and growth that distinguishes between the properties of various qualitatively different inflation regimes. It is then shown how some of these regimes, by undermining confidence in various nominal contracts that are central to the process of accumulation in a monetary production economy, can adversely affect growth.     

Highway franchising and real estate values

It has become increasingly common worldwide to auction the construction and operation of new highways to the bidder that charges the lowest toll. The resulting highway franchises often entail large increases in the value of adjoining land developments. We build a model to assess the welfare implications of allowing large developers to participate in these auctions. Developers bid more aggressively than independent construction companies because lower tolls increase the value of their land holdings. Therefore developer participation unambiguously increases welfare, yet this increase is not necessarily monotonic in the number of developers participating. Welfare also increases when large developers can bid jointly.     

Which way does water flow? An econometric analysis of the global price integration of water stocks

Around US$600 billion of investment is desperately needed to address forecasted huge shortages in water supply globally. A number of worldwide investors – so-called water funds – have started to take up this challenge. For these global water investors, knowledge about the extent of integration between the water sectors of financial markets is highly important. According to international portfolio diversification theory, the less (more) integrated markets are, the more (less) benefits there are from international diversification. In this study, we investigate the extent and manner of interdependence among the US, European and Asian water sector of the equity markets based on Vector Autoregression (VAR), Granger causality and impulse response analyses. We find that world water stock market prices are indeed significantly interdependent although this interdependence varies across time periods. Each market quickly responds to shocks from each other and completes its response within 3 days. Hence, for water investors, international diversification that is undertaken just within the water sector will not be beneficial. The result also implies that there is the risk of crossmarket contagion – that is, price volatility spill over across water sectors of different financial markets, and therefore, water authorities in one market should take cognisance of events in other markets.     

The Political Economy of Policy Reform in the Philippines: 1992–1998

Accurately measuring Turkey's informal sector is important for policymaking. We utilize household income‐expenditure surveys to examine this sector's income underreporting. The Pissarides‐Weber approach hypothesizes that data would reflect such underreporting as “excess food consumption”. Our results suggest informal sector members spend more than their formal sector counterparts with comparable reported income levels. Using this information, we estimate the average size of the true informal sector to be about 1.25 times the official estimate. The informal sector accounts for around 83% of officially reported disposable income. Therefore, true Turkish disposable income is (25%)?(83%), roughly 21% larger than the officially estimated magnitude.     

Dynamics of financial returns densities: A functional approach applied to the Bovespa intraday index

We model the stochastic evolution of the probability density functions (PDFs) of Ibovespa intraday returns over business days, in a functional time series framework. We find evidence that the dynamic structure of the PDFs reduces to a vector process lying in a two-dimensional space. Our main contributions are as follows. First, we provide further insights into the finite-dimensional decomposition of the curve process: it is shown that its evolution can be interpreted as a dynamic dispersion-symmetry shift. Second, we provide an application to realized volatility forecasting, with a forecasting ability that is comparable to those of HAR realized volatility models in the model confidence set framework.     

How to Auction a Bottleneck Monopoly When Underhand Vertical Agreements are Possible

A seaport is awarded in a Demsetz auction to the operator bidding the lowest cargo-handling fee. The competitive auction is irrelevant if the port operator integrates into shipping and sabotages competitors, thus providing a motive for a ban on vertical integration. The paper shows that such a ban increases welfare even when underhand agreements with shippers are possible. For this result to attain, the auction must be combined with a sufficiently high floor on the cargo-handling fee that operators can bid in the auction. With no floor, a Demsetz auction is worse than an unregulated bottleneck monopoly.     

The Surge in Capital Inflows to Developing Countries: An Analytical Overview

After being excluded from world capital markets during the debtcrisis, many developing countries have experienced large capitalinflows during the past five years. The challenges that theseinflows pose for domestic policy in recipient countries havegenerated a substantial literature. This article presents anoverview of that literature, describing the characteristicsof the new inflows, analyzing the policy issues they raise,assessing their causes and likely sustainability, and evaluatingpotential policy responses. The desirable policy response istied to characteristics of the flows themselves as well as tothe characteristics of the recipient economy.     

An Empirical Analysis of Tijuana Water Consumption

This paper examines time series characteristics of water consumption in Tijuana, a large manufacturing center and port city located in Northwestern Mexico. Home to more than 700 maquiladora assembly plants, it is one of the fastest growing metropolitan economies in Mexico. That growth places intense demands on the municipal water grid. Because it is located in a semi-arid region, Tijuana also faces supply constraints. Given the nature of the problems faced by water authorities, this research uses time series econometric techniques to analyze monthly information on grid hook-ups and per meter water consumption. Empirical estimation results are fairly satisfactory. Out-of-sample simulation results are mixed and indicate that care should be used if these equations are employed for planning purposes. Lag structures in the equations do, however, suggest several policy implications with respect to drought surcharges and rate hikes.      

Viasystems Group,inc.

Viasystems Group, Inc. (Viasystems) is an international supplier of electromechanical assemblies and components. It specializes in manufacturing printed circuits and assembling electric cables and industrial metal cabinets. The case concerns the Printed Circuit Division at Viasystems and its need to adapt its costing system to the relocation of its manufacturing activities to China under its strategic planning, begun in 2001. Planning and controlling operating costs and the presentation of the financial statements have therefore become major issues. The case is set in 2006, six years after the start of progressive offshoring of manufacturing to China. It describes: 1) how external environmental pressures and the need for profitability have led to a critical strategic decision; and 2) how this new business model has changed upper management's informational needs, leading them to rethink their costing system, particularly at the Chinese plants. Setting the case in 2006, when all the plants have been relocated to China, enables discussions of the challenges that management will have to cope with in the future, after the operations transfer has been completed and the consequences on the management control system.