Prahu Shipping in Eastern Indonesia in The Interwar Period

During the interwar period, prahu (sail) shipping in Eastern Indonesia experienced first decline and then dramatic resurgence. This paper explains this pattern in terms of the interaction between competitive pressures from the modern sector and the impact of the Depression.     

Explaining Managed Trade as Rational Cheating

Postwar “managed-trade” policies feature low baseline tariffs combined with selective nontariff protection. This paper interprets managed trade as a rational strategy to undermine trade-liberalization agreements in the absence of credible external enforcement. Analyzing the Kennedy GATT Round, I explore the calculus that led the United States to undermine across-the-board tariff reductions selectively by introducing nontariff barriers in industries with rapidly rising import demand. I show empirically that nontariff barrier dynamics across 216 industries support a rational-cheating interpretation of managed-trade policy.     

Book Reviews

Huib Foot, Arie Kuyvenhoven and Jaap Jansen, Industrialisation and Trade in Indonesia, Yogyakarta: Gadjah Mada University Press, 1990, pp. vii + 552.

W.L. Korthals Altes, General Trade Statistics, 1822–1940, Changing Economy in Indonesia, Volume 12a, Amsterdam: Royal Tropical Institute, 1991, pp. 200.

Adrian Clemens, J. Thomas Lindblad and Jeroen Touwen, Regional Patterns in Foreign Trade, 1911–1940, Changing Economy in Indonesia, Volume 12B, Amsterdam: Royal Tropical Institute, 1992, pp. 104.

BRIEFLY NOTED: Australian International Development Assistance Bureau, Introduction to Government Administration, Planning and Budgeting in Indonesia, Canberra: Aidab, 1991, pp. xxii + 60.

Helen Hughes (ed.), The Dangers of Export Pessimism: Developing Countries and Industrial Markets, San Francisco: International Center for Economic Growth, 1992, pp. xxvii + 446.

M.G. Asher el al., Fiscal Incentives and Economic Management in Indonesia, Malaysia and Singapore, Singapore: Asian-Pacific Tax and Investment Research Centre, 1992, pp. viii + 133.

Hal Hill, Indonesia's Textile and Garment Industries: Developments in an Asian Perspective, Occasional paper no. 87, Singapore: Institute of Southeast Asian Studies, 1992, pp. vi + 83.     

Notes And Communications

This communication sketches in headlines long term developments in American and European banking. Contrary to the expectation of both practitioners and theorists in the nineties, has the role of banks in the economy not diminished but increased. This is demonstrated by the long term increase of bank credit as a percentage of GDP (resulting in a stronger growth of M2 and 3 than GDP), a growing contribution of bank sector income to GDP, growing employment (until recently) and a growing share of bank shares in total market capitalisation over the past three decades until 2004–2006. This growing share may have been induced by a comparatively superior performance, supported by a relatively high dividend yield, despite a lower-than-average price-earning ratio. Banks counteracted increased competition and disintermediation tendencies in their traditional lending business by a progressive involvement in capital markets. They developed themselves, in several functions, these markets. For this reason the often used distinction between bank-based and market-based financial systems is less meaningful. Capital markets function thanks to banks. Even more because a rapidly growing volume of new, unlisted investment instruments are constructed by banks and traded over their counter. By this development the risk absorbing and intermediating function of banks – being their basic function in the financial system – is also accentuated. The professional capability of leading banks to fulfil this basic function has in the current “sub prime” crisis come under severe criticism.     

Measuring and predicting heterogeneous recessions

This paper examines the usefulness of a more refined business cycle classification for monthly industrial production (IP), beyond the usual distinction between expansions and contractions. Univariate Markov-switching models show that a three regime model is more appropriate than a model with only two regimes. Interestingly, the third regime captures ‘severe recessions’, contrasting the conventional view that the additional third regime represents a ‘recovery’ phase. This is confirmed by means of Markov-switching vector autoregressive models that allow for phase shifts between the cyclical regimes of IP and the Conference Board's Leading Economic Index (LEI). The timing of the severe recession regime mostly corresponds with periods of substantial financial market distress and severe credit squeezes, providing empirical evidence for the ‘financial accelerator’ theory.     

How to Identify and Forecast Bull and Bear Markets?

Because the state of the equity market is latent, several methods have been proposed to identify past and current states of the market and forecast future ones. These methods encompass semi‐parametric rule‐based methods and parametric Markov switching models. We compare the mean‐variance utilities that result when a risk‐averse agent uses the predictions of the different methods in an investment decision. Our application of this framework to the S&P 500 shows that rule‐based methods are preferable for (in‐sample) identification of the state of the market, but Markov switching models for (out‐of‐sample) forecasting. In‐sample, only the mean return of the market index matters, which rule‐based methods exactly capture. Because Markov switching models use both the mean and the variance to infer the state, they produce superior forecasts and lead to significantly better out‐of‐sample performance than rule‐based methods. We conclude that the variance is a crucial ingredient for forecasting the market state. Copyright © 2016 John Wiley & Sons, Ltd.     

Testing for ARCH in the presence of additive outliers

In this paper we investigate the properties of the Lagrange Multiplier [LM] test for autoregressive conditional heteroscedasticity (ARCH) and generalized ARCH (GARCH) in the presence of additive outliers (AOs). We show analytically that both the asymptotic size and power are adversely affected if AOs are neglected: the test rejects the null hypothesis of homoscedasticity too often when it is in fact true, while the test has difficulty detecting genuine GARCH effects. Several Monte Carlo experiments show that these phenomena occur in small samples as well. We design and implement a robust test, which has better size and power properties than the conventional test in the presence of AOs. We apply the tests to a number of US macroeconomic time series, which illustrates the dangers involved when nonrobust tests for ARCH are routinely applied as diagnostic tests for misspecification. Copyright © 1999 John Wiley & Sons, Ltd.     

The Conditional Probability of Mortgage Default

This research examines the implications of contingent-claims models for empirical research on default. We focus on the probability of default over a short horizon given the current state of the world, i.e. , the conditional probability of default, which more closely resembles the estimates of empirical models. We highlight the differences between the conditional and unconditional approaches and provide guidance for empirical research by illuminating situations where the expected sign reverses over the shorter horizon or where the functional form is highly nonlinear.     

Combining density forecasts using focused scoring rules

We investigate the added value of combining density forecasts focused on a specific region of support. We develop forecast combination schemes that assign weights to individual predictive densities based on the censored likelihood scoring rule and the continuous ranked probability scoring rule (CRPS) and compare these to weighting schemes based on the log score and the equally weighted scheme. We apply this approach in the context of measuring downside risk in equity markets using recently developed volatility models, including HEAVY, realized GARCH and GAS models, applied to daily returns on the S&P 500, DJIA, FTSE and Nikkei indexes from 2000 until 2013. The results show that combined density forecasts based on optimizing the censored likelihood scoring rule significantly outperform pooling based on equal weights, optimizing the CRPS or log scoring rule. In addition, 99% Value‐at‐Risk estimates improve when weights are based on the censored likelihood scoring rule.     

Strategy on a Page: An ArchiMate‐based tool for visualizing and designing strategy

Nowadays, organizations need to be able to adjust more rapidly to the circumstances of their environment, at a strategic, tactical, and operational level. However, most software tools are designed to support the tactical and operational levels, while at a strategic level there are not many options available. In this paper, we propose a software tool which supports modelling of strategic information, covering several well‐known strategy techniques, and also facilitates the design of highly customizable management dashboards. To validate our proposed software tools, we perform two case studies, with two inherently different organizations, namely a public university and an investment fund.