Japan's Lost Decade: What Have We Learned and Where Are We Heading?*

The lost decade has provided us a number of lessons. One of them is the limit of standard macroeconomics. This paper attempts to show that uncertainty plays a much more important role in the macroeconomy than most economists recognize. Once the economy is caught in an uncertainty trap, the effectiveness of standard policy necessarily weakens. The zero‐interest rate may well be a consequence of an uncertainty trap. In fact, whether or not the economy is caught in such an uncertainty trap distinguishes “depression” from the normal cyclical “recession.” The significance of demand‐creating innovation is another point I emphasize in this paper. In my view, a lack of demand‐creating innovation is a part of explanation of the lost decade. At the same time, this paper offers prospects for the future of the Japanese economy.     

Stock Prices and the Real Economy: Power Law versus Exponential Distributions

This paper explores the relationship between the stock prices and the real economy. The standard approach – the so called consumption-based asset pricing model – attempts to explain it based on the assumption of the representative agent. In this paper, we argue that the representative agent assumption is fundamentally flawed. Drawing on the recent advancement of “econophysics” on financial markets See Mantegna and Stanley (An Introduction to econophysics: correlations and complexity in finance, 2000) for the introduction to econophysics, we argue that in contrast to the neoclassical view, there is in fact a wedge between financial markets, the stock prices in particular, and the real economy.     

Prediction of Individual Bond Prices via a Dynamic Bond Pricing Model: Application to Japanese Government Bond Price Data

In this paper, we propose a dynamic bond pricing model and report the usefulness of our bond pricing model based on analysis of Japanese Government bond price data. We extend the concept of the time dependent Markov (TDM) model proposed by Kariya and Tsuda (Financial Engineering and the Japanese Markets, Kluwer Academic Publishers, Dordrecht, The Netherlands, Vol. 1, pp. 1–20) to a dynamic model, which can obtain information for future bond prices. A main feature of the extended model is that the whole stochastic process of the random cash-flow discount functions of each individual bond has a time series structure. We express the dynamic structure for the models by using a Bayesian state space representation. The state space approach integrates cross-sectional and time series aspects of individual bond prices. From the empirical results, we find useful evidence that our model performs well for the prediction of the patterns of the term structure of the individual bond returns.     

A Note on Option Pricing for the Constant Elasticity of Variance Model

We study the arbitrage free optionpricing problem for the constant elasticity of variance (CEV) model. To treatthestochastic aspect of the CEV model, we direct attention to the relationship between the CEV modeland squared Bessel processes. Then we show the existence of a unique equivalentmartingale measure and derive the Cox's arbitrage free option pricing formulathrough the properties of squared Bessel processes. Finally we show that the CEVmodel admits arbitrage opportunities when it is conditioned to be strictlypositive.     

SOCIAL SECURITY AND WELL‐BEING IN A LOW‐INCOME ECONOMY: AN APPRAISAL OF THE KERALA EXPERIENCE

The State of Kerala, which is considered to have attained a level of social well‐being comparable to that of advanced countries despite its relatively low income standard, is widely known as an example of “welfare by public intervention” in developing economies. This paper, focusing on the four areas of food provision, health services, elementary education, and pension schemes, and paying attention to the participation of the private sector as well as the activities of political parties and labor unions, points out that in Kerala, the private sector and organized activities have played a vital role, in addition to “public intervention,” in the betterment of public welfare.     

Structural Variations of Agriculture in the Pacific

Agricultural shares of output and employment in thirteen Pacific basin countries are analyzed with reference to a global baseline for 1980. Per-capita output parity ratios are lower in the ASEAN, ANICs, and Japan as compared to their trading partners in North America and Oceania. Wide differences in land-labor ratios influence the directions of technological change, economies of scale, and dynamic comparative advantage. Differential changes in the partial productivities of land and labor between the high and middle income economies suggest that there has been a narrowing of the gap in land productivities and a widening of the gap in labor productivities across the Pacific. The implication is that there has been a regressive international impact on wages for farm labor. Further, since agriculture's share of land resources does not tend to fall as fast as its share of output and labor, increasing structural imbalance in terms of differential land rents to agriculture vis-à-vis non-agriculture results in greater adjustment pressures on the property and derived institutional systems that control natural resource allocation decisions. The results are consistent with the heavy adjustment burdens that agriculture and developing economies have been bearing as a result of expanding trade and capital flows, and the need to focus more attention on the structure, functioning, and performance of the different institutional systems that control resource allocation decisions in these countries.     

权势的价值:党员身份与社会网络的回报在不同所有制企业是否不同?

在市场化改革的进程中,党员身份和社会关系网络作为两种非市场因素,它们对于收入的作用在不同所有制企业有所不同吗?通过对中国家庭收入调查(CHIPS)数据的分析,本文发现:(1)党员身份能显著地提高收入,但党员身份在不同所有制部门的作用并不存在显著差异,并且通过1995年与2002年的数据比较,党员的回报也并未发生显著变化; (2)社会网络在国有单位对收入没有显著影响,但在非国有单位对收入有显著的正影响。     

Effects of Multilateral Trade Liberalization on Prices*

To analyze the effects of simultaneous tariff reductions by multiple importing countries on prices, we construct a simple three‐country model where a good is produced by a monopolist with nonconstant marginal cost and imported by two countries. We compare two representative tariff‐reduction formulas: the “fixed‐amount” and the “uniform percentage” reductions. The uniform percentage reductions may increase the consumer price in the importing country, whose initial tariff is lower. Thus, importing countries with relatively low tariffs may prefer a bilateral trade agreement to a multilateral one to ensure consumer gains.     

Agricultural policy adjustments in the Korean rice economy

A political preference function is used to endogenize government actions in a simultaneous equation model for South Korean rice policy. The effects of economic changes on rice pricing decisions through estimated political weights are tested to improve our understanding of policy adjustments in that country and open the way for further research in East Asia.     

ECONOMIC INTEGRATION AND RULES OF ORIGIN UNDER INTERNATIONAL OLIGOPOLY*

Free trade agreements (FTAs) have rules of origin (ROOs) to prevent tariff circumvention by firms of nonmember countries. This article points out that in imperfectly competitive markets, ROOs have another role overlooked in the existing literature. Instead of focusing on the impacts of ROOs in the intermediate‐good markets, we draw our attention to the final‐good markets to examine the effects of ROOs. We find that under some conditions, ROOs benefit both firms at the expense of consumers. Under some other conditions, ROOs benefit the firm producing outside the FTA and hurt the firm producing inside the FTA.