Japan's economic slowdown and its global implications: a review of the economic modelling

Despite its role as a driver of global economic growth through the 1970s, in recent decades the rise of China has seen the international importance of Japan's economic performance recede from the public discourse. This is notwithstanding its continuing key role as economic partner to both industrial and developing countries and changes in its economic performance that would otherwise be a matter for global concern. In particular, the tendency for the Japanese economy and its external trade to stagnate not only has immediate consequences for global performance but also foreshadows a path to industrial transition for other key Asian economies. This paper reviews quantitative studies of Japan's performance. It identifies a paucity of results addressing global implications and suggests new research in this direction.     

Maintaining a Reputation for Consistently Beating Earnings Expectations and the Slippery Slope to Earnings Manipulation

This paper investigates whether maintaining a reputation for consistently beating analysts' earnings expectations can motivate executives to move from “within GAAP” earnings management to “outside of GAAP” earnings manipulation. We analyze firms subject to SEC enforcement actions and find that these firms consistently beat analysts' quarterly earnings forecasts in the three years prior to the manipulation period and continue to do so by smaller “beats” during the manipulation period. We find that manipulating firms beat expectations around 86 percent of the time in the 12 quarters prior to the manipulation period (versus 75 percent for control firms) and that manipulation often ends with a miss in expectations. We document that executives of manipulating firms face strong stock market and CEO pressure to perform. Prior to the manipulation period, these firms have high analyst optimism, growing institutional interest, and high market valuations, along with powerful CEOs. Further, we find that maintaining a reputation for beating expectations is more important than CEO overconfidence and is incremental to CEO equity incentives for explaining manipulation. Our results suggest that pressure to maintain a reputation for beating analysts' expectations can encourage aggressive accounting and, ultimately, earnings manipulation.     

A New Class of Revealed Comparative Advantage Indexes

Open Economies Review - This paper draws upon a critical analysis of the three RCA indexes in Vollrath (1991) to propose a new class of RCA indexes. The baseline RCA index in this new class rests...     

A non-linear model of the real US/UK exchange rate

This paper provides a framework for building and estimating non-linear real exchange rate models. The approach derives the stationary distribution from a continuous time error correction model and estimates this by MLE methods. The derived distribution exhibits a wide variety of distributional shapes including multimodality. The main result is that swings in the US/UK rate over the period 1973:3 to 1990:5 can be attributed to the distribution becoming bimodal with the rate switching between equilibria. By capturing these changes in the distribution, the non-linear model yields improvements over the random walk, the speculative efficiency model, and Hamilton's stochastic segmented trends model.     

A socio-technical framework for assessing the viability of carbon capture and storage technology

Carbon capture and storage (CCS) is seen as a key technology to tackle climate change. The principal idea of CCS is to remove carbon from the flue gases arising from burning fuels for electricity generation or industrial applications and to store the carbon in geological formations to prevent it from entering the atmosphere. Policy makers in several countries are supportive of the technology, but a number of uncertainties hamper its further development and deployment. The paper makes three related contributions to the literatures on socio-technical systems and technology assessment: 1) It systematically develops an interdisciplinary framework to assess the main uncertainties of CCS innovation. These include technical, economic, financial, political and societal issues. 2) It identifies important linkages between these uncertainties. 3) It develops qualitative and quantitative indicators for assessing these uncertainties. This framework aims to help decision making on CCS by private and public actors and is designed to be applicable to a wider range of low carbon technologies. The paper is based on a systematic review of the social science literature on CCS and on insights from innovation studies, as well as on interviews about assessment of new technologies with experts from a range of organisations and sectors.     

Environmental Policy, Tax Incidence, and the Cost of Public Funds

This paper studies under what conditions a double dividend may occur in the sense that both environmental quality and employment rise. A simple static general equilibrium model is employed in which tax policy faces the dual task of internalising a negative environmental externality and raising revenue to finance public consumption. The model features a clearing labour market with both labour demand and supply and a fixed factor of production (e.g. capital). Hence, we can study tax incidence and its effect on employment, environmental quality, and the marginal cost of public funds. It is shown for the case of an upward sloping labour supply curve and less than full tax shifting by employers that a shift towards greener preferences cannot yield a double dividend, even if the fixed factor is important. However, if labour supply curve bends backwards, more environmental concern confers a double dividend.     

Neighborhood effects of concentrated mortgage foreclosures

As the national mortgage crisis has worsened, an increasing number of communities are facing declining housing prices and high rates of foreclosure. Central to the call for government intervention in this crisis is the claim that foreclosures not only hurt those who are losing their homes to foreclosure, but also harm neighbors by reducing the value of nearby properties and in turn, reducing local governments’ tax bases. The extent to which foreclosures do in fact drive down neighboring property values has become a crucial question for policy-makers. In this paper, we use a unique dataset on property sales and foreclosure filings in New York City from 2000 to 2005 to identify the effects of foreclosure starts on housing prices in the surrounding neighborhood. Regression results suggest that above some threshold, proximity to properties in foreclosure is associated with lower sales prices. The magnitude of the price discount increases with the number of properties in foreclosure, but not in a linear relationship.     

Turning from crime: A dynamic perspective

This paper examines criminal choice using a variant of the human capital model. The innovation of our approach is that it attempts to disaggregate individual capital, not unlike production-based studies which disaggregate physical capital into equipment and structures. We disaggregate an individual’s capital stock into the standard human capital component as well as a utility generating component that we call social capital. In our set-up, social capital is used to account for the influence of social norms on the decision to participate in crime. This is done by modeling the stigma of arrest as a reduction in the individual’s social capital stock. We also allow individuals to account for the impact of their criminal actions on their probability of arrest. In order to estimate the structural parameters underlying the model, we make use of computationally intensive methods involving simulated generalized method of moments and value function approximation. The empirical results, based on panel data from the Delinquency in a Birth Cohort II Study, support the social capital model of crime and reveal significant state dependence in the decision to participate in crime.