WAGE–PRICE DYNAMICS AND DEFLATION IN HONG KONG

Abstract. We provide empirical evidence on the dynamics of prices and wages in Hong Kong. The results suggest that the post‐1997 deflation can be understood using a conventional macroeconomic framework wherein foreign influences constitute the basic underlying shocks, and adjustment processes in domestic wages and prices determine the details of the transmission mechanism. We find that the decline in local nominal prices owes much to declining prices of imported intermediate goods. The negative output gap and increase in unemployment during the deflation period also have their origin in foreign shocks, but the domestic wage adjustment process is an important contributing factor.     

Time-varying integration,interdependence and contagion

Bekaert et al. (2005) define contagion as “correlation over and above what one would expect from economic fundamentals”. Based on a two-factor asset pricing specification to model fundamentally-driven linkages between markets, they define contagion as correlation among the model residuals, and develop a corresponding test procedure. In this paper, we investigate to what extent conclusions from this contagion test depend upon the specification of the time-varying factor exposures. We develop a two-factor model with global and regional market shocks as factors. We make the global and regional market exposures conditional upon both a latent regime variable and three structural instruments, and find that, for a set of 14 European countries, this model outperforms more restricted versions. The structurally-driven increase in global (regional) market exposures and correlations suggest that market integration has increased substantially over the last three decades. Using our optimal model, we do not find evidence that further integration has come at the cost of contagion. We do find evidence for contagion, however, when more restricted versions of the factor specifications are used. We conclude that the specification of the global and regional market exposures is an important issue in any test for contagion.     

How Do Investment Banks Value Initial Public Offerings (IPOs)?

Abstract:  We investigate the valuation and the pricing of initial public offerings (IPOs) by investment banks for a unique dataset of 49 IPOs on Euronext Brussels in the 1993–2001 period. We find that for each IPO several valuation methods are used, of which Discounted Free Cash Flow (DFCF) is the most popular. The offer price is mainly based on DFCF valuation, to which a discount is applied. Our results suggest that DDM tends to underestimate value, while DFCF produces unbiased value estimates. When using multiples, investment banks rely mostly on future earnings and cash flows. Multiples based on post-IPO forecasted earnings and cash flows result in more accurate valuations.     

Global purchasing strategy: Conceptualization and measurement

In this paper we introduce Global Purchasing Strategy (GPS) as an explanatory construct of global purchasing performance. GPS is embedded in a contingent resource-based view. The construct is conceived as the driving force behind the strategy-organization alignment. GPS is conceptualized along four dimensions: the configuration of the global purchasing process, the standardization of the global purchasing process, the standardization of product-related characteristics and the standardization of the purchasing staff organization. We develop the GPS scale and test it on a sample of 151 internationally purchasing firms. The analytic results show evidence of both reliability and validity. We propose a general model of global purchasing performance with GPS as a central mediating construct.     

Should the Central and Eastern European Accession Countries Adopt the EURO Before or After Accession?

I analyse the option of unilateral euroisation for Central and Eastern Europe. The thorny questions of losing seigniorage and losing the lender of last resort are explicitly addressed. It is found that the option of unilateral euroisation might be quite inviting for some countries. This is certainly the case if one takes into account the difficulties thrown up by the Maastricht–criteria. It is argued that unilateral euroisation provides an elegant way out of the catch of the official EMU-accession path. The EU has, however, expressed explicitly its enmity against euroisation. I think this is a policy error. It should be at least a genuine policy option for all countries concerned. At best the EU should stimulate euroisation by embedding it in a broader and more embracing framework that would support integration and ultimately accession to the EU of the whole of Central and Eastern Europe.     

International Trends in Income Inequality and Social Policy

In most OECD-countries income inequality has increased during the last two decades. In this paper, we investigate whether changes in the overall distribution of income can be attributed to social policy measures. For most (but not all) countries we find a possible relationship between changing welfare state policies (as measured by expenditure ratios and replacement rates) and changing income inequality. Especially the United Kingdom and the Netherlands combined an above-average rise in inequality with a reduction in the generosity of the welfare system.A more elaborate budget incidence analysis for the Netherlands indicates that in the period 1981–1997 inequality of disposable household income increased sharply. The two main forces behind this phenomenon were a more unequal distribution of market incomes and changes in social transfers. Fundamental social security reforms in the Netherlands indeed seem to have made the income distribution less equal. However, income inequality in the Netherlands is still below the OECD average at the end of the observed period.