WORLD OUTLOOK

The strength of US domestic demand is exerting a very strong pull on the world economy. Japan in particular is benefiting from soaring export demand, but the effects on European exports have been offset by weak domestic demand and, in the case of West Germany and the UK, by damaging industrial disputes which have interrupted supply. Over the next 12 months we expect the US economy to slow down under the weight of the financial and external balance pressures, which two years of very rapid but unbalanced growth have built up. For the world economy, however, we expect the slowdown in the US to be counterbalanced by expanding domestic demand in Europe and Japan, especially if a lower dollar permits reductions in interest rates. We forecast world output growth of about 3 per cent next year, well below the near-5 per cent projected for 1984 - the cyclical peak. By the second half of 1985 the world recovery will be three years old and we expect a pause in the growth of output. Against a background of stable monetary growth we expect world inflation in the 5–6 per cent range over the medium term. This is consistent with some increase in US inflation, low and stable inflation in Japan and West Germany and further progress in reducing inflation in countries such as France and Italy. Our forecast is based on the assumption that the dollar falls next year. If it does not fail we believe there is a significant risk of slower growth.     

The Volatility and Transmission of Equity Returns among the G-7 Countries: the post-Bretton Woods experience

This paper models the volatility of national stock market returns of the G-7 countries using ARCH and GARCH modeling techniques. Then, via the use of vector autoregression analysis, the international transmission of volatility among the countries is explored for the period between April 1973 and July 1990. Variance decompositions are calculated in order to quantify the impacts of volatility shocks in one market on the others. Impulse response functions are used to inspect the dynamic responses of domestic and foreign volatility shocks. Results indicate that volatility transmission among the G-7 countries is the norm in the post-Bretton Woods era. Further, we find that volatility shocks are generally absorbed within six to nine months.     

ASSET PRICING AND FINANCIAL REPORTING WITH CHANGING PRICES

This study empirically investigates the recent SFAS No. 33 requirements to determine if the inflation disclosures, or information similar to it, are impounded in security returns. An attempt is also made to determine which of the two diverse disclosures best represent the information impomded by the market. The investigation utilizes a methodological framework arising out of currently accepted asset pricing theory. The results suggest that the current cost data parallels the information impounded in security returns and that it provides risk information not included in the commonly employed systematic risk factor, beta.     

Latin America and the Great War: A preliminary survey of developments in Chile,Peru, Argentina and Brazil

In this paper we present some preliminary ideas on a comparative study of the economic and social effects of World War I on Latin America. We argue that this issue has generally been conceived too narrowly, and that the events of the war years have much to tell us about the nature of capitalist development in the region. We begin by outlining some of the major external factors which influenced the course of economic change in the years before 1914. The initial impact of the war is then considered, particularly with regard to finance, trade and social dislocation. Finally, we briefly examine similar topics during the remaining war years. We conclude by arguing that the war did not provide an opportunity to alter the course of economic growth, but tended to highlight the weaknesses and magnify the contradictions of Latin America's brand of capitalist development.