THE TEMPORAL CAUSALITY BETWEEN FISCAL DEFICITS AND INTEREST RATES

Conventional wisdom suggests that higher government fiscal deficits cause higher (long-term) interest rates. Much empirical work—generally standard ordinary least squares (OLS) regression analysis—has examined this issue and has produced mixed findings. Even if these standard OLS studies conclude that deficits and interest rates are related, they do not answer the question of which came first—the higher deficit or the higher interest rate? A few studies have used Granger causality to consider the question of temporal causality, generally with short-term interest rates. Tliis paper employs the relatively new cointegration and error-correction methodology to reexamine the temporal causality between fiscal deficits and interest rates—both long term and short term. This study finds evidence that federal deficits cause the long-term interest rate.     

The Role of Social Scientific Inquiry in Technology Transfer

Technology, the application of science to achieve practical results in the area of production (as economists use the term), can be understood only in a limited way from a strict disciplinary framework such as those prevailing in the social sciences. Perhaps the most restrictive is the limitation from the viewpoint of economics. The author (an economist) illustrates this contention with some interdisciplinary dimensions of technology encountered in developing countries, such as those pertaining to indigenous technological generation and technology transfer. A development framework incorporating such interdisciplinary dimensions, it is argued, is a prerequisite for formulating meaningful technology policies which help to promote an improved quality of life in developing countries.     

The Effects of Financial Statement Information Proximity and Feedback on Cash Flow Forecasts*

The Financial Accounting Standards Board (FASB) and International Accounting Standards Board (IASB), in their joint Financial Statement Presentation project, are reconsidering the basic format of financial statements. The Boards’ preliminary discussions related to this joint project indicate that they intend to modify the required financial statements to increase the proximity of performance‐related information for each reported period. We provide evidence related to this potential change by investigating the effects of financial statement information proximity on investors’ ability to learn the forecast‐relevant time series properties of reported cash flows and accruals. We also examine the role feedback plays in this relationship. Our experimental results suggest that nonprofessional investors are able to more quickly learn the relation between current period cash flows and accruals and future cash flow realizations when financial statement information is presented in a single statement rather than separated into two statements. In addition, we find that nonprofessional investors exhibit lower levels of absolute forecast errors and less forecast dispersion when financial statement information is unified into a single statement. Finally, we provide evidence that nonprofessional investors who receive extensive outcome feedback on a single page initially learn more quickly and later, after learning has leveled off, accurately forecast more consistently than do investors who receive extensive or limited feedback spread across two pages. Overall, our results provide evidence on the effectiveness of alternate financial statement presentation formats and the potential usefulness of receiving more extensive feedback.     

ON DERIVING THE INTERNAL RATE OF RETURN FROM THE ACCOUNTANT'S RATE OF RETURN

L.A. Gordon (J.B.F.A. Vol. 1 No, 3) claims to have derived a method for approximating the IRR using the ARR. This paper demonstrates that the key relationship in Gordon's paper is only valid if the IRR is already known and used to calculate economic depreciation. It is suggested that Gordon has merely derived a means for refining ARR, but not for deriving IRR.
Dans son article paru dam Vol. 1 No 3 de ce journal, L.A. Gordon prétend avoir introduit une méthode qui permet d'évaluer "Internal Rate of Return" au moyen de "Accountant's Rate of Return". Ce papier démontre que le rapport-clé dont Gordon nous fait part n'est vérifiable que si "Internal Rate of Return" est préablement connu et sert a calculer l'amortissement économique. On insinue ainsi que Gordon a simplement présenté un moyen de perfectionner "Accountant's Rate of Return" mais n'en a pas démontré pour autant l'évaluation de "Internal Rate of Return".
L.A. Gordon (J.B.F.A. Band 1, Nr. 3) behauptet, er habe eine Annäherungsmethode abgeleitet, womit der interne Zinsfuss von dem RO1 Kriterium berechnet werden kann. Dieser Beitrag zeright, dass das Schlüsselverhältnis in Gordons Abhandlung nur dann gültig ist wenn der interne Zinsfull schon bekannt ist und als kalkulatorischer Zinssatz für ökonomische Abschreibungsbetrage verwendet wird. Es wird behauptet, dass Gordon keine Methode für die Ableitung des internen Zinsfusses entwickelt hat, sondern nur eine für die Verbesserung des R01 Kriteriums.     

Uncertainty in an Interconnected Financial System,Contagion, and Market Freezes

This paper studies contagion and market freezes caused by uncertainty in financial network structures. Our model demonstrates that in a financial system where financial institutions are interconnected, a negative shock to an individual financial institution could spread to other institutions, causing market freezes because of creditors' uncertainty about the financial network structure. Our model also reveals that when both a large creditor and a continuum of small creditors are present, the size of the large creditor will affect the severity of market freezes substantially. Moreover, our model is used to examine central bank policies to alleviate market freezes.     

The Ohio Banking Crisis: A Lesson in Consumer Finance

This paper reports the results of a survey taken on April 14, 1985, at a meeting of the depositors in Home State Savings Bank, the Cincinnati-based savings and loan association that had closed in early March because of losses suffered in government securities transactions. The results for the 578 depositors surveyed show a high percentage of depositors over 55 years of age and retired, with a high school education or less. Although the majority of those surveyed are low- to middle-income consumers, over 50 percent have more than $20,000 on deposit in Home State Savings Bank, which, for most of them, represents over 50 percent of their total savings. A large number of depositors also appear to have limited or incorrect information about Home State's deposit insurance and financial condition.     

Sensory evaluation and consumer acceptance of carbohydrate-based fat replacers in biscuits

The effect of three different carbohydrate-based fat substitutes in a baking powder biscuit was studied. The various fat replacers were substituted for fat in the biscuit formula at a rate of 33%, 66% and 100%. The biscuit variations were assessed by objective and sensory measurements. Comparable objective and sensory results indicated that crust colour was lightened significantly with increased use of the individual fat substitute. Tenderness decreased as substitute use increased when biscuits were rated by the sensory panel, but opposite results were obtained by the texture analyser. Objective analysis indicated that an increase in use of the fat substitute produced a moister biscuit, which was in agreement with the sensory panel. Consumer location testing rated the biscuits as moderately acceptable, but data did indicate a willingness for a product of this type to become available in the marketplace. The overall results do indicate that a fat substitute can be a viable additive in the basic biscuit, but there is a maximum at which the substitute can be used for fat and still produce an acceptable product.