Analysis of the social policy parameters by forecasting indicators of social sector financing

The paper continues the publication started in our journal (2007, no. 1) of the forecasts made in the integrated system “Population, Incomes, Consumption” developed by the Central Economics and Mathematics Institute of the Russian Academy of Sciences. The forecasts cover indicators of social sector financing at different level: macro-level, by population groups, and by family type. The paper shows that expansion of the statistical base and its updating after the population census in 2002 have lead toserious changes in the forecast of the major social policy parameters. Their detailed analysis and conclusions are presented.     

Efficiency,Cointegration and Contagion in Equity Markets: Evidence from China,Japan and South Korea*

This paper empirically examines whether three East Asian stock markets, namely, those of China, Japan and South Korea, are individually and/or jointly efficient, and whether contagion exists between the cointegrated markets. While individual market efficiency is examined through testing for the random walk hypothesis, joint market efficiency is examined through testing for cointegration and contagion. The present study finds that the hypothesis of individual market efficiency is strongly rejected for the Chinese stock market, but not for the Japanese and the South Korean stock markets. However, when testing for cointegration, market efficiency is strongly rejected for all these markets. We take a simple case of contagion and find that although there is a long‐term relationship among the three markets, the contagion hypothesis cannot be rejected only between Japanese and South Korean stock markets, indicating short‐run portfolio diversification benefits from these two markets.     

An Analysis of Historical and Future-Oriented Information in Accounting-Based Security Valuation Models*

The Ohlson (1995) and Feltham and Ohlson (1995) valuation model provides a rigorous framework for summarizing the information in expected future earnings and book values. However, the model provides little guidance on selecting an empirical proxy for expected future earnings. We examine whether and under what circumstances historical earnings and analyst earnings forecasts offer comparable explanation of security prices. This issue is of particular interest because analyst forecasts are less readily available than historical data. Under appropriate circumstances, historical data may allow wider use of the Feltham-Ohlson valuation model by researchers and investors. A related issue is the incremental explanatory power of historical earnings and realized future earnings (perfect-foresight forecasts) for security prices beyond analyst forecasts. If historical earnings are incrementally informative, that would suggest that analyst forecasts do not fully reflect price-relevant information in past earnings. If future earnings are incrementally informative, that would suggest that security prices reflect investors' implicit earnings forecasts beyond analyst forecasts. We examine these issues using a historical model (based on past earnings), a perfect-foresight model (based on realized future earnings), and a forecast model (based on Value Line earnings forecasts). All three models provide significant explanatory power for security prices, and each set of earnings data provides incremental explanatory power for prices when used with the other sets of earnings data. We estimate the models separately for firms with moderate and extreme earnings-to-price (E/P) ratios, a proxy for earnings permanence. For moderate-E/P firms, the historical model's explanatory power exceeds that of the perfect foresight model, and is indistinguishable from that of the analyst forecast model. In contrast, for extreme-E/P firms, the perfect-foresight model offers greater explanatory power than the historical model, but lower explanatory power than analyst forecasts. Our results suggest that financial analysts' forecasting efforts are best focused on firms whose earnings contain large temporary components (extreme E/P firms). However, in general, both historical data and analyst forecasts are complementary information sources for security valuation.     

Employment and Prices in a Simple Macroeconomy

This exercise sets up interlinked labor and goods markets in a classroom macroeconomy. Students with worker roles are endowed with labor that can be consumed or sold to firms that post wages, purchase labor, and produce goods that can be either consumed or sold to workers. The money from sales is used by firms to purchase labor in the next period. Complicated record keeping is avoided by using ordinary playing cards to represent money and goods. The exercise can stimulate a discussion of potential output, unemployment, and the role of money in determining wages and prices. Use: This experiment can be used in introductory macroeconomics classes to teach concepts of the circular flow, real and money wages, unemployment, and labor market equilibrium and in intermediate classes to consider Keynesian and quantity theories. Time required: Fifteen minutes for reading instructions, 30 to 45 minutes for trading (depending on the number of periods), and 15 minutes for discussion. Materials: You will need one copy of the instructions for each person and one deck of ordinary playing cards for each replicated group of two workers and one firm. No money or other incentives are required.     

The Precarious Fiscal Foundations of EMU

After a brief overview of the fiscal theory of the price level, we consider the insights it provides into monetary policy formation under certain kinds of deflationary and inflationary stress. Then we consider how the institutions of the EMU are equipped – or unequipped – to deal with such stress. The conclusion is that fiscal institutions as yet unspecified will have to arise or be invented in order for EMU to be a long-term success.     

Conditions for Optimality of a Currency Area

Two approaches to the theory of OCA are distinguished in this paper. The first, called the marginalistic approach, attempts to define the OCA from the point of view of a single country, and the second examines the optimality of a currency area of a given membership. The marginalistic approach and its limitations are discussed first. Then, the paper proceeds to the second approach which is discussed in the context of the cooperative game theory in characteristic function form; it argues that a currency area is optimal when the welfare functions of its constituent members are in the core. This implies that the welfare functions of all constituent members of the currency area are maximized and hence they are all better off with a common currency rather than with their own national currencies; hence, no member country has the intention to abandon the currency area. The paper concludes that the condition for the optimality of a currency area independently of the degree of economic similarity of its constituents requires that the characteristic function must exhibit non decreasing returns with respect to its size.     

Developing Countries and Environmental Protection: Contract Design in Perfectly Correlated Environments

I study the problem faced by an asymmetrically informed supranational governmental authority (SNGA) with limited funds that wishes to design an international environmental agreement (IEA) for less developed countries (LDCs). The SNGA cannot contract directly with polluting firms in the various LDCs, but it must deal with such firms through their national governments. I study this tripartite hierarchical interaction for two LDCs. My principal result is that despite the perfect correlation in the private information of the governments and the firms across the two countries, and in contrast with the result contained in Batabyal (1998a), the SNGA cannot implement a first-best IEA.     

Profitability and capital accumulation in British industry during the transwar period, 1913–1924

This article provides new information on profitability, taxation, and capital accumulation across the transwar period, based on an analysis of the accounting records of 30 companies in a range of industrial sectors. The main findings, that apparently high profitability in the war period was largely an illusion, and that the subsequent slump was very severe in its effects on business profitability, are consistent with views of the period as one of low capital accumulation. In effect, the generosity of the state's negotiating position towards capital owners during the war was cancelled out by the combined effects of inflation and of the severe postwar slump.