MINIMUM-HOURS CONSTRAlNTS AND RETlREMENT BEHAVlOR

This paper presents statistics which confirm the existence of minimum-hours constraints for jobs held by a majority of prime-age male workers who are not self-employed. It then considers the implications of these Constraints for studies of retirement behavior and related policy analyses. Potential biases associated with conventional analyses, which either ignore the existence of minimum-hours constraints or assume they are pervasive, are discussed in the context of structural life-cycle retirement models. A more realistic but still imperfect specification, which can be estimated given available data, assumes minimum-hours constraints on the main job and variable hours elsewhere     

A Linear Expenditure System with Adjustment Costs*

This paper develops a new dynamic version of the linear expenditure system. The dynamics derive from the utility function specification which includes an adjustment cost term. As a result, the consumer is less likely to fine-tune his consumption pattern—the substitution effects of small price changes are zero. The issue of the discrimination between this model of habit persistence and the Pollak and Wales habit formation model is discussed in some detail. Some preliminary estimates of the model are reported; these estimates were obtained using a quarterly Australian data base in which six commodities are individually distinguished.     

The Pound and the Punt: A Study in Exchange Rate Policy

The rise in sterling during 1979 and 1980 was a remarkable and largely unexpected development While it has been accepted that the rise in the exchange rate played an important part in the reduction in the UK inflation rate during 1980 it has also been suggested that the appreciation of sterling was a major cause of the fall in output, particularly in the manufacturing sector.
In this Viewpoint we attempt to assess the effect of the rise in sterling on output and inflation by comparing the performance of the UK economy with that of the Irish Republic. As a member of the European Monetary System (EMS), Ireland shared the general depreciation of the European currencies against sterling. We suggest that the result has been a higher rate of inflation in Ireland than in the UK Also, although the Irish manufacturing sector avoided the UK's loss of competitiveness, the fall in manufacturing output in Ireland during 1980 was - when allowance is made for a higher underlying rate of growth in Ireland - comparable to that in the UK     

Funds Statements and the Two-Entity Test: A Reply

Partington et al. (1986) reject the criticism of the two-entity test (Robb, 1985) on the general grounds that the article constained quotations out of contest, misquotations, incorrect assertions and incorrect referencing. It is accepted that there was one case of incorrect referencing but the other objections are rejcted. The conclusion is still drawn that the two-entity test is impractical and depends for its operationality on clear definition of basic accounting terms.     

Valuation and Optimal Exercise of the Wild Card Option in the Treasury Bond Futures Market

The Chicago Board of Trade Treasury Bond Futures Contract allows the short position several delivery options as to when and with which bond the contract will be settled. The timing option allows the short position to choose any business day in the delivery month to make delivery. In addition, the contract settlement price is locked in at 2:00 p .m . when the futures market closes, despite the facts that the short position need not declare an intent to settle the contract until 8:00 p .m . and that trading in Treasury bonds can occur all day in dealer markets. If bond prices change significantly between 2:00 and 8:00 p .m ., the short has the option of settling the contract at a favorable 2:00 p .m . price. This phenomenon, which recurs on every trading day of the delivery month, creates a sequence of 6-hour put options for the short position which has been dubbed the “wild card option.” This paper presents a valuation model for the wild card option and computes estimates of the value of that option, as well as rules for its optimal exercise.     

Adjusting to the Oil Price Fall

In his Budget speech last March Mr. Lawson said “If we can survive unscathed the loss of half our North Sea oil revenues in less than 25 weeks, then the prospective loss of the other half over the remainder of the next 25 years should not cause us undue concern.” In this Viewpoint we ask whether Mr. Lawson's optimism was premature. Although we continue to believe that the fall in oil prices will have favourable effects on the UK economy, there will be problems of adjustment which could be painful. We ask the following questions: (a) What adjustment to the balance of payments is needed to compensate for the fall in oil prices? (b) How will the adjustment occur? (c) How far can the recent weakness of sterling be explained by the fall in oil prices, or is there a more alarming explanation?     

The Nominal Framework for Economic Policy

The next Budget will almost certainly be the last one before a General Election. Despite the temptations to make electorally attractive cuts in income tax or increases in public spending, we believe the opportunity should be taken to re-affirm the government's intention to move steadily towards price stability. This is particularly important at a time when our exceptionally high real interest rates may reflect fears about a future change in policy. We provide a nominal framework which extends the Medium Term Financial Strategy to 1992–3. Given the buoyancy of revenue and the likely growth of money GDP next year, we argue that the PSBR should be no higher than £6bn next year. There is a good case for keeping it at this year's expected level of £5bn.