An index of growth due to depreciation*

Abstract. While factors such as inflation, technological change and growth often have been discussed in connection with the adequacy of provisions for depreciation under a historical cost model, there is another dimension to the capital maintenance problem and it concerns the multiplier effect of depreciation. When an amount equal to depreciation is reinvested, a firm's productive capacity tends to increase. Reinvestment of depreciation also increases a firm's financial capital if book depreciation is more accelerated than economic depreciation. Based on a model developed by Ijiri (1967), this paper derives an index of this growth due to depreciation. The index estimates a bias in conventional depreciation methods that has been overlooked in the literature on the subject. This bias has implications for inflation accounting because if conventional depreciation methods have a built-in growth bias, adjustments for inflation may be a type of double counting. A second implication mentioned concerns the bias in accounting rates of return. Résumé. Bien que des facteurs tels l'inflation, les changements technologiques et la croissance ont souvent été examinés à propos de la pertinence des provisions pour dépréciation dans le cadre du modèle au coût historique, un autre aspect du problème de préservation du capital subsiste et il concerne l'effet multiplicateur de l'amortissement. Lorsqu'un montant égal à l'amortissement est réinvesti, la capacité d'exploitation de la firme a tendance à s'accroître. Le réinvestissement de l'amortissement fait aussi augmenter le capital de la firme si l'amortissement comptable est plus accéléré que la dépréciation économique. En se basant sur un modèle élaboré par Ijiri (1967), cet article dérive un indice de cette croissance attribuable à l'amortissement. L'indice estime un biais des méthodes traditionnelles, qui a été négligé dans les recherches consacrées au sujet. Ce biais a des implications en comptabilité des effets de l'inflation, car si les méthodes d'amortissement traditionnelles comportent implicitement ce biais de croissance, les redressements relatifs à l'inflation peuvent être assimilés à un double comptage. Une deuxième conséquence est signalée, soit le biais relatif aux taux de rendement comptable.     

THE ENVIRONMENTAL KUZNETS CURVE: A LITERATURE SURVEY

Literature on the environmental Kuznets curve (EKC) is examined, focussing on the possibility that the EKC may be explained by trade patterns. If significant, this trade effect would cast doubt on the oft‐stated conclusion that economic growth automatically leads to environmental improvement. Research has been insufficient, although a number of promising approaches have been developed. Although evidence on the pollution‐haven hypothesis is mixed, there is enough to suggest that the EKC development path may not be available to today's developing countries. Other problems cast doubt on whether the EKC exists in any relevant sense at all.     

Multi‐level Environmentalism and the European Union: The Case of Trans‐European Transport Networks

In the European Union, trans‐European transport networks (TENs) are a vital element in the constitution of one European space in order to enable the free movement of people and goods throughout the Union. Their construction, however, often causes environmental degradation. Opposition to EU politics is mostly voiced at the level of individual nation‐states. As the case of TENs reveals, however, protest against European policy projects with environmental side effects can take the form of ‘multi‐level environmentalism’, linking lobbying and ‘conscientization’ in Brussels with direct action at the national and local levels. Civil society theory, social movement theory and governance theory help ensure a theoretically informed answer to the question of how the resistance to TENs is organized and framed. By questioning dominant problem definitions and solution strategies, environmental movements and movement organizations, both in Brussels and in the individual nation‐states, point to the possibility of looking at social and political reality from another, non‐hegemonic point of view. In this way, they contribute to challenging the often biased technocratic, growth‐oriented character of the European Union.     

MONETARY POLICY DURING JAPAN'S LOST DECADE*

We develop a quantitative costly price adjustment model with capital formation for the Japanese economy. The model respects the zero interest rate bound and is calibrated to reproduce the nominal and real facts from the 1990s. We use the model to investigate the properties of alternative monetary policies during this period. The setting of the long‐run nominal interest rate in a Taylor rule is much more important for avoiding the zero bound than the setting of the reaction coefficients. A long‐run interest rate target of 2.3% during the 1990s avoids the zero bound and enhances welfare.     

The Dark Side of Circuit Breakers

Market-wide circuit breakers are trading halts aimed at stabilizing the market during dramatic price declines. Using an intertemporal equilibrium model, we show that a circuit breaker significantly alters market dynamics and affects investor welfare. As the market approaches the circuit breaker, price volatility rises drastically, accelerating the chance of triggering the circuit breaker—the so-called “magnet effect,” returns exhibit increasing negative skewness, and trading activity spikes up. Our empirical analysis supports the model's predictions. Circuit breakers can affect overall welfare negatively or positively, depending on the relative significance of investors' trading motives for risk sharing versus irrational speculation.     

Logit Price Dynamics

We model retail price stickiness as the result of costly, error‐prone decision making. Under our assumed cost function for the precision of choice, the timing of price adjustments and the prices firms set are both logit random variables. Errors in the prices firms set help explain micro facts related to the size of price changes, the behavior of adjustment hazards, and the variability of prices and costs. Errors in adjustment timing increase the real effects of monetary shocks, by reducing the “selection effect.” Allowing for both types of errors also helps explain how trend inflation affects price adjustment.     

SOUTH AFRICAN DISINVESTMENT: CAUSES AND EFFECTS

Divestment pressure is one channel through which those interest groups opposing apartheid have attempted to induce U.S. firms to withdraw from South Africa. This paper investigates empirically the relationship between stockholder influence, disinvestment, and the behavior of South Africa-active firms. The paper finds that if institutional investors hold a large proportion of a firm's shares, then that firm will be induced to participate in fair employment and social programs to benefit its black labor force. However, the same "socially responsible" firm is also more likely to disinvest—leaving a less progressive employer in its place.     

TRADE AND THE ENVIRONMENTAL KUZNETS CURVE: IS SOUTHERN AFRICA A POLLUTION HAVEN?

Evidence that the environmental Kuznets curve (EKC) may be explained by trade patterns casts doubt on the oft‐stated conclusion that economic growth automatically leads to environmental improvement. Trends in net exports as a proportion of consumption for both USA and UK trade with SACU were examined for various dirty industries. Some evidence of pollution haven effects is found, although a similar trend for clean industries suggests that this effect is weak. However, even a general shift in manufacturing industries from North to South (as opposed to a shift in specifically dirty industries) may explain the EKC to some extent.     

Monetary Policy Trade-Offs with a Dominant Oil Producer

We model oil production decisions from optimizing principles rather than assuming exogenous oil price shocks and show that the presence of a dominant oil producer leads to sizable static and dynamic distortions of the production process. Under our calibration, the static distortion costs the U.S. around 1.6% of GDP per year. In addition, the dynamic distortion, reflected in inefficient fluctuations of the oil price markup, generates a trade-off between stabilizing inflation and aligning output with its efficient level. Our model is a step away from discussing the effects of exogenous oil price variations and toward analyzing the implications of the underlying shocks that cause oil prices to change in the first place.