The labour share and the dynamics of output

We derive a new Keynesian IS curve that is augmented to capture the direct effects of the labour share on output. Our derivation shows that the direct effect of the labour share on output is ambiguous. Furthermore, theory suggests that the expected labour share negatively affects output. Empirically, we find that the labour share plays a significant role in driving output dynamics. However contrary to theoretical expectation, the expected labour share positively affects output in some cases, a finding we call the ‘labour share puzzle’. We also find that over time, there seems to be a general shift in aggregate demand dynamics towards being profit-led, i.e. rising labour share decreases output. We conclude that policymakers should not ignore the labour share in their decisions.     

Does a factor Phillips curve help? An evaluation of the predictive power for U.S. inflation

This article evaluates various models’ predictive power for U.S. inflation rate using a simulated out-of-sample forecasting framework. The starting point is the traditional unemployment Phillips curve. We show that a factor Phillips curve model is superior to the traditional Phillips curve, and its performance is comparable to other factor models. We find that a factor AR model is superior to the factor Phillips curve model, and is the best bivariate or factor model at longer horizons. Finally, we investigate a New Keynesian Phillips curve model, and find that its forecasting performance dominates all other models at the longer horizons.     

An evaluation of SFAS No. 130 comprehensive income disclosures

In this study, we provide evidence on the pricing of other comprehensive income (OCI) that differs from most evidence in prior research. Prior archival research has largely concluded that OCI is not priced by investors. In contrast, we provide evidence in the post-SFAS 130 period that OCI is priced on a dollar-for-dollar basis as is predicted by economic theory for transitory income items. We attribute this finding to our use of post-SFAS 130 as-reported measures of OCI rather than pre-SFAS 130 as-if estimates of OCI measures. Furthermore, we document that two components of OCI, foreign currency translation adjustment and unrealized gains/losses on available-for-sale securities, are priced by investors. In the post-SFAS 130 period, we also find that the type of financial statement in which firms report OCI and its components affects pricing, consistent with the conclusions of prior experimental research. However, our evidence suggests that investors pay greater attention to OCI information reported in the statement of changes in equity, rather than in a statement of financial performance. This could be attributed to investors becoming more familiar in the post-SFAS 130 period with the predominant reporting of OCI and its components in the statement of changes in equity. These findings may be relevant to both the Financial Accounting Standards Board and the International Accounting Standards Board, which jointly are undertaking a new project that, in part, is addressing financial statement presentation of OCI items.

The macroeconomics of the labor market: three fundamental views

We distinguish and assess three fundamental views of the labor market regarding the movements in unemployment: (1) the frictionless equilibrium view; (2) the chain reaction theory, or prolonged adjustment view; and (3) the hysteresis view. While the frictionless view implies a clear compartmentalization between the short- and long-run, the hysteresis view implies that all the short-run fluctuations automatically turn into long-run changes in the unemployment rate. We assert the problems faced by these conceptions in explaining the diversity of labor market experiences across the OECD labor markets. We argue that the prolonged adjustment view can overcome these problems since it implies that the short, medium, and long-runs are interrelated, merging with one another along an intertemporal continuum.

Prototypicality advantages for pioneers over me-too brands: the role of evolving product designs

Prior empirical research suggests that consumers perceive pioneers as more prototypical (i.e., representative) of their product categories than me-too followers. This prototypicality advantage is believed to contribute to an enduring marketplace advantage for the pioneer. We extend research into pioneering prototypicality advantages by considering the ramifications of simultaneous product design (i.e., product attribute) evolutions. We hypothesize that the simultaneous evolution of product designs of both the pioneer and me-too will diminish the pioneer’s prototypicality advantage over the me-too, even though the me-too does not initiate the change. To test our hypotheses, we create an experimental environment consisting of four cells, each corresponding to a different marketplace scenario: a no-change condition; a simultaneous-evolution condition; a pioneer-updates-first condition; and a leapfrogging (i.e., me-too updates first) condition. The results suggest that simultaneous design evolutions can diminish the pioneer’s prototypicality advantage. As a result, me-too entry may be a more attractive strategy in the long-run than currently believed in product categories characterized by substantial design evolution.

Predicting credit card fraud with Sarbanes‐Oxley assessments and Fama‐French risk factors

This research developed and tested machine learning models to predict significant credit card fraud in corporate systems using Sarbanes‐Oxley (SOX) reports, news reports of breaches and Fama‐French risk factors (FF). Exploratory analysis found that SOX information predicted several types of security breaches, with the strongest performance in predicting credit card fraud. A systematic tuning of hyperparamters for a suite of machine learning models, starting with a random forest, an extremely‐randomized forest, a random grid of gradient boosting machines (GBMs), a random grid of deep neural nets, a fixed grid of general linear models where assembled into two trained stacked ensemble models optimized for F1 performance; an ensemble that contained all the models, and an ensemble containing just the best performing model from each algorithm class. Tuned GBMs performed best under all conditions. Without FF, models yielded an AUC of 99.3% and closeness of the training and validation matrices confirm that the model is robust. The most important predictors were firm specific, as would be expected, since control weaknesses vary at the firm level. Audit firm fees were the most important non‐firm‐specific predictors. Adding FF to the model rendered perfect prediction (100%) in the trained confusion matrix and AUC of 99.8%. The most important predictors of credit card fraud were the FF coefficient for the High book‐to‐market ratio Minus Low factor. The second most influential variable was the year of reporting, and third most important was the Fama‐French 3‐factor model R² – together these described most of the variance in credit card fraud occurrence. In all cases the four major SOX specific opinions rendered by auditors and the signed SOX report had little predictive influence.     

Outside versus inside bonds: A Modigliani–Miller type result for liquidity constrained economies

When agents are liquidity constrained, two options exist – sell assets or borrow. We compare the allocations arising in two economies: in one, agents can sell government (outside) bonds and in the other they can borrow by issuing (inside) bonds. All transactions are voluntary, implying no taxation or forced redemption of private debt. We show that any allocation in the economy with inside bonds can be replicated in the economy with outside bonds but that the converse is not true. However, the optimal policy in each economy makes the allocations equivalent.     

Social Constructivism,Mental Models,and Problems of Obedience

There are important synergies for the next generation of ethical leaders based on the alignment of modified or adjusted mental models. This entails a synergistic application of moral imagination through collaborative input and critique, rather than “me too” obedience. In this article, we will analyze the Milgram results using frameworks relating to mental models (Werhane et al., Profitable partnerships for poverty alleviation, 2009), as well as work by Moberg on “ethics blind spots” (Organizational Studies 27(3):413–428, 2006), and by Bazerman and Chugh on “bounded awareness” (Harvard Business Review, 2006; Mind &; Society 6:1–18, 2007) Using these constructs to examine the Milgram experiment, we will argue that the ways in which the experiments are framed, the presence of an authority figure, the appeal to the authority of science, and the situation in which the naïve participant finds herself or himself, all create a bounded awareness, a narrow blind spot that encourages a climate for obedience, brackets out the opportunity to ask the moral question: “Am I hurting another fellow human being?” and may preclude the subject from utilizing moral imagination to opt out of the experiment. We will conclude that these forms of almost blind obedience to authority are correctable, but with difficulty. We will argue that linking the modification of mental models to an unbinding of awareness represents an important synergistic relationship and one that can build effectively on the lessons learned from our experience with moral imagination.