Technical Progress and Real Wages Once again

We construct a general equilibrium model of trade and show that an economy can experience technological progress and declining real wages provided that it is open to trade and import demand is sufficiently inelastic in both countries. This is a puzzling outcome so far as marginal productivity paradigm is concerned. In this context we demonstrate that new technology works differently in a closed vs an open economy. In an open economy, technical improvements may generate a fall in labor real earnings, but not in a closed economy. In addition, technical progress in manufacturing must increase manufacturing–service wage gap according to marginal productivity doctrine. We show that the opposite outcome can occur theoretically in an open economy—yet another seemingly puzzling labor market outcome.     

The US Trade Deficit and the Rate of Interest

It is well known that nations with high trade deficits normally have higher interest rates than those with surplus or balanced trade. However, such has not been the case with the USA, which has seen a relentless trade deficit since 1982. Its interest rates have been lower than those prevailing in many trade‐surplus nations. Furthermore, these rates fell even as the trade shortfall shot up, generating an interest‐rate paradox. This paper demonstrates that, unlike for other nations, the rising trade deficit itself became the cause of lower US interest rates, and this happened because of the world's strong interest in maintaining a high value of the dollar.     

Are Tariffs Inflationary?

Economists universally regard tariffs to be inflationary and free trade to be deflationary, a view that this paper challenges. It is argued that while rotectionism has generally created inflation in developing economies, the experience of the United States was totally different. Tariffs in the US were never associated with rising prices, and trade liberalization with declining prices. High tariffs were always followed by sharp drops in the cost of living. A theoretical model is developed to explain the deflationary effects of tariffs in the United States. Thus tariffs produce inflation only in nonmarket or ualistic developing economies, but not in advanced economies.     

A theory of employment guarantees: Contestability,credibility and distributional concerns

Both raw intuition and past experience suggest that the success of an employment guarantee scheme (EGS) in safeguarding the welfare of the poor depends both on the wage it promises, and the ease with which any worker can gain access. An EGS is thus at once a wage guarantee and a rationing device. We chart the positive and normative limits of such an EGS as an efficiency improving and poverty alleviating policy reform in a canonical labor market setting. At its core, an EGS provides an aggregate, not just EGS, employment target. Given the target, the EGS wage and access can be fine-tuned to deliver outcomes ranging from a contestable labor market to a simple universal unemployment benefit. The credibility of any such target, however, is shown to be triggered endogenously by a host of factors: the distributional concerns of the planner, private sector productivity, the prevalence of market power and the need for public works. Paradoxically, the outcome with a planner who cares only about efficiency can be less efficient than the outcome with a planner whose social welfare function also gives weight to poverty!     

Persistent performance in the mutual fund market: Tests with funds and investment advisers

Recent studies of mutual funds have concluded that there is some evidence of superior performance. We test for the existence of superior performance and its persistence with mutual funds and mutual fund investment advisers on a data set of monthly returns from 1979 to 1989 for 1,387 mutual funds grouped by 243 advisers. We find no evidence of superior performance or its persistence but we do find significant evidence of persistence of inferior performance. Consistent with previous studies our findings depend on the benchmark chosen, with multiple benchmarks producing a larger degree of inferior performance.     

Ex-day behavior of japanese stock prices: New insights from new methodology

We study the ex-dividend day behavior of Japanese stock prices on the ex-day in March, when most stocks simultaneously go ex-divided, for the period 1983–1987. We find a positive abnormal return for stocks that go ex-dividend. However, prices drop by nearly the full amount of the dividend. However, prices drop by nearly the full amount of the dividend once the common abnormal return is subtracted from individual returns. For the many ex-dividend day stocks that also go ex-rights on the same March ex-day, we find that the return is on average higher than that for stocks without rights issues.     

An Asymptotic Theory for Estimating Beta-Pricing Models Using Cross-Sectional Regression

Without the assumption of conditional homoskedasticity, a general asymptotic distribution theory for the two-stage cross-sectional regression method shows that the standard errors produced by the Fama–MacBeth procedure do not necessarily overstate the precision of the risk premium estimates. When factors are misspecified, estimators for risk premiums can be biased, and the t -value of a premium may converge to infinity in probability even when the true premium is zero. However, when a beta-pricing model is misspecified, the t -values for firm characteristics generally converge to infinity in probability, which supports the use of firm characteristics in cross-sectional regressions for detecting model misspecification.