rationality of preliminary money stock estimates earlier studies have presented mixed evidence on the rationality of the federal reserve s preliminary money stock estimates the authors investigate the rationality of m1a m1 m2 and m3 for both seasonally and not seasonally adjusted data they find preliminary growth rates of these aggregates to be rational for not seasonally adjusted data but irrational when data are seasonally adjusted using monte carlo studies the authors conclude that irrationality in seasonally adjusted data arises from the specific seasonal adjustment procedure used by the federal reserve as a result researchers conducting similar tests may want to focus exclusively on not seasonally adjusted data copyright 1995 by mit press

predicting early data revisions to u s gdp and the effects of releases on equity markets the effects of data uncertainty on real time decision making can be reduced by predicting data revisions to u s gdp growth we show that survey forecasts efficiently predict the revision implicit in the second estimate of gdp growth but that forecasting models incorporating monthly economic indicators and daily equity returns provide superior forecasts of the data revision implied by the release of the third estimate we use forecasting models to measure the impact of surprises in gdp announcements on equity markets and to analyze the effects of anticipated future revisions on announcement day returns we show that the publication of better than expected third release gdp figures provides a boost to equity markets and if future upward revisions are expected the effects are enhanced during recessions

the behavior of prices and inflation an empirical analysis of disaggregat price data this paper analyzes the effects of inflation on the dispersion of prices as well as other aspects of price behavior using disaggregated data on prices of foodstuffs in israel during 1978 84 we find that the effect of expected inflation on intramarket price variability is stronger than the effect of unexpected inflation we show that even in times of high inflation price quotations are not trivially short and price changes are not synchronized across firms these facts taken together confirm that there is some staggering in the setting of prices we find that the distribution of real prices is far from being uniform as many menu cost based models assume or conclude in fact as inflation increases to very high levels this distribution is not even symmetric when the annual inflation rate reaches 130 percent there are equal chances of finding real prices above or below the market average but upward deviations in the real price are further away from zero than downward ones furthermore as the annu

are different vintages of data on the components of gdp co integrated some evidence for the united kingdom abstract the process of data revision is often an extensive one giving rise to different time series on the same variable with potentially different properties in this study we ask whether different vintages of data are cointegrated and find for our data set on the income components of united kingdom gdp that this is not always the case although in general later vintages are more likely than earlier vintages to be co integrated with the final vintage a lack of co integration favours rejection of the view that preliminary vintages are efficient forecasts of the final vintage

the state dependence of output revisions abstract this paper investigates whether economic activity dynamics predict gdp revisions using panel data from 15 oecd countries we find that economic activity predicts gdp revisions early releases tend to overestimate gdp growth during slowdowns and vice versa we also find that the source of the predictability could be related to the sampling of information collection finally the predictability comes from short term economic activity dynamics rather than business cycle position

improving real time estimates of output and inflation gaps with multiple vintage models real time estimates of output gaps and inflation gaps differ from the values that are obtained using data available long after the event part of the problem is that the data on which the real time estimates are based is subsequently revised we show that vector autoregressive models of data vintages provide forecasts of post revision values of future observations and of already released observations capable of improving estimates of output and inflation gaps in real time our findings indicate that annual revisions to output and inflation data are in part predictable based on their past vintages this article has online supplementary materials

mergers and the market for corporate control the canadian evidence the proposition that a competitive market for corporate control effectively limits managerial divergence from shareholder wealth maximization implies that corporate takeovers are beneficial to shareholders of both firms involved in the transaction this paper presents the first systematic large sample study of the valuation effects of canadian mergers and concludes that these investments indeed create significant gains to shareholders of both bidder and target firms this evidence which is particularly interesting in light of extant evidence on the performance of u s bidder firms indicates that the canadian market for corporate control plays an important role in promoting an optimal resource allocation les fusions et le marche du controle des societes le cas canadien la proposition qui veut qu un marche concurrentiel du contr6le des societes limite effectivement les ecarts entre la strategie des gestionnaires et celle qui maximise la richesse des actionnaires a pour corrollaire que les prises de controle des societes sont benefiques pour les actionnaires des deux societes impliquees ce memoire presente les resultats de la premiere etude systematique de grande envergure des effets de valeur nette actualisee des fusions au canada on en vient a la conclusion que ces investissements ont engendre des gains significatifs pour les actionnaires a la fois des firmes qui ont pris le contr6le et des firmes capturees ces resultats particulierement interessants a la lumiere des resultats qui existent sur la performance des societes americaines qui ont effectue des prises de controle indiquent que le marche canadien du controle des societes joue un role important dans la promotion d une allocation optimale des ressources

money and the dispersion of relative prices a price dispersion equation is tested with data from the german hyperinflation the equation is derived from a version of lucas s and barro s partial information localized market models in this extension different excess demand elasticities across commodities imply a testable dispersion equation in which the explanatory variable is the magnitude of the unperceived money growth in order to test this hypothesis a price dispersion series is constructed and a measure of the unperceived part of money growth is estimated the model receives support from the empirical analysis although it is evident that unincluded variables have important effects on price dispersion

relative price variability inflation and the allocative efficiency of the price system abstract this paper develops a theory of the relationship between aggregate and relative price variability based on the inability of people even in a rational world to identify permanent changes in relative demands whether caused by real or by monetary variability and relative productivities as soon as they occur the theory implies that the variance of the rate of inflation and the variance of relative price change are positively related although expectations are rational and markets always clear production decisions respond sluggishly to changes in relative prices temporary shocks to relative demands cause prolonged changes in the structure of production available information is used so as to maximize the efficiency of the price system however this efficiency decreases when any of the underlying variances increases this decrease is more pronounced when the production lag is longer

first announcements and real economic activity the recent literature suggests that first announcements of real output growth in the us have predictive power for the future course of the economy while the actual value of output growth does not we show that this need not point to a behavioural relationship whereby agents respond to perceptions instead of the truth but may instead simply be a by product of the data revision process the revisions to the initial estimates which define the final values of the observations are shown to be key in determining any relationship between first announcements and the future course of the economy c 2010 elsevier b v all rights reserved

the relationship between relative prices and the general price level it is very nearly a truismi amaong neoclassical economists that the public is wont to confuse changes in the general price level with relative price changes correspondingl y one might speak of the independence between the two as one of the central postulates of the neoclassical tradition william stanley jevons was aml ong the first to identify this basic dichotomin economic life as well as to attempt to explain the ordinary citizen s seenming incapacity to understand it

industrial organization paradigms empirical evidence and the economic case for competition policy the recent reform of competition policy in canada prompts one to ask whether there remains a tenable economi c case for antitrust policy to answer this question this paper begi ns by sketching competing industrial organization i o paradigms th e empirical evidence bearing on these paradigms particularly the m ainline structure conduct performance paradigm which has provided the main theoretical support for competition policy is examined it is concluded that recent theoretical and empirical work in i o have undermined the traditional economic case for competition policy the last section of the paper attempts a partial reconstruction of the ca se for competition policy along somewhat unorthodox lines

keep it real a real time uk macro data set abstract we present a real time macro data set for the uk each variable has many different vintages reflecting the revisions and updates that occur over time our aim is to provide a resource for researchers evaluating uk forecasting performance and policy making in real time we illustrate the importance of these data by analysing their impacts on uk inflation forecasts and monetary policy in the late 1980s contrary to the view of contemporary policy makers we find that the initial measurements of demand side macro variables did not disguise inflationary pressures

data revisions are not well behaved we document the empirical properties of revisions to major macroeconomic variables in the united states our findings suggest that they do not satisfy simple desirable statistical properties in particular we find that these revisions do not have a zero mean which indicates that the initial announcements by statistical agencies are biased we also find that the revisions are quite large compared to the original variables and they are predictable using the information set at the time of the initial announcement which means that the initial announcements of statistical agencies are not rational forecasts

price dispersion and inflation evidence from israel the paper considers the question whether observed price differentials reflect perceived differences in quality service agreements or location or whether information imperfections can explain this phenomenon it sets out theoretical arguments linking inflation to reductions in the information stock held by agents and thus to greater price dispersion the hypothesis is tested using monthly price data for 13 uniquely defined goods sold in israel between 1971 and 1984 price dispersion is shown to be positively related to the rate of market price inflation since inflation is an unlikely proxy for changes in perceived characteristics the findings support price dispersion theories based on optimally imperfect decision making

geographical disaggregation of sectoral inflation econometric modelling of the euro area and spanish economies abstractthis article studies the performance of different modelling strategies for 969 and 600 monthly price indexes disaggregated by sectors and geographical areas in spain regions and in the euro area 12 ea12 countries we also provide by means of spatial bi dimensional vector equilibrium correction models for all pairs of prices between neighbours a description of spatial cointegration restrictions that could be useful for understanding price setting within an economy we study the relevance of the regional disaggregation by using the proposed models to forecast the corresponding headline inflation and testing whether it is more accurate than alternative forecasts based on aggregated models the results for spain show that this is the case country disaggregation forecasts are also reliable for the ea12 but only because derived headline inflation forecasting is not significantly worse than alternative forecasts the models in this article can be used for competitive analysis and other macro and r

relative price variability and inflation regression studies have established that there tend to be convex nonsymmetric relationships between relative price variability and the inflation rate unanticipated inflation and the change in the inflation rate this paper shows that such regression results follow as definitional artifacts for a simple but quite general stochastic model of price changes the analysis is based on the fact that the definitions of relative price variability the inflation rate unanticipated inflation and the change in the inflation rate imply a particular structure for the covariances among these variables the structure of these covariances has implications for the regression coefficients copyright 1991 by ohio state university press

are preliminary announcements of the money stock rational forecasts abstract we develop a theoretical framework of analyzing preliminary announcements of economic data and then apply this framework to the money stock we find that preliminary announcements of the money stock are best characterized as measured with classical errors in variables that is the revision is not correlated with the true value of the series the revision is however forecastable using information available at the time of the preliminary announcement our ability to forecast the revision implies that preliminary announcements are not rational estimates of the true money stock

monetary policy rules based on real time data this paper examines the magnitude of informational problems associated with the implementation and interpretation of simple monetary policy rules using taylor s rule as an example i demonstrate that real time policy recommendations differ considerably from those obtained with ex post revised data further estimated policy reaction functions based on ex post revised data provide misleading descriptions of historical policy and obscure the behavior suggested by information available to the federal reserve in real time these results indicate that reliance on the information actually available to policy makers in real time is essential for the analysis of monetary policy rules

robustness of the relationship between price variability and inflation for us manufacturing we study the relationship between relative price variability and inflation in two different ways we first look at product class census unit values for five time periods between 1958 and 1982 and find evidence of a positive relationship between variability and inflation then we directly update the vining and elwertowski 1976 study for the period 1974 91 using individual commodity series from the bureau of labor statistics we conclude by discussing differences across industries in price stickiness

the effect of gnp announcements on fluctuations of gnp growth abstract this paper is an empirical study of the degree in which perceptions affect the evolution of the economy we study the effects of the announcements that the government makes on gnp growth these announcements are subject to a substantial degree of noise and its accuracy improves with time a revised number is published several years after the first announcement was made public we consider that the final revision is the true value of gnp growth we show that once announcements are taken into account the true value of gnp growth at time t has no predictive power in determining growth at any future time all the predictive power lies in the announcements and not in the true level of growth actually we show that the variable that determines future growth is the unexpected part of the announcements we also show that announcements affect growth via aggregate investment

how informative are preliminary announcements of the money stock in canada the authors examine hypotheses about the relation between provisional estimates and final values of m1 m2 and m3 and their growth rates in canada using monthly data and multiple revisions preliminary values cannot be viewed as final values plus an error revision uncorrelated with these but they are approximately unbiased forecasts of final values the second difference in short term interest rates is a leading indicator of revisions in m1 growth rates and revisions exhibit significant seasonality hence preliminary values are not completely rational forecasts

inflation and the distribution of price changes across markets a causal analysis recent advances in time series methodology are applied to the investigation of causal relationships between monthly changes in the consumer price index and changes in its dispersion across different consumption categories this dispersion is associated with the degree to which relative prices are changing past inflation rates seem useful in forecasting changes in relative prices but not vice versa there is also a significant contemporaneous correlation between these series hence it is concluded that fluctuations in the inflation rate help cause fluctuations in relative prices but not vice versa unless the entire effect occurs within a month the analysis also serves to illustrate a new way to implement the granger causality concept

variability of inflation and the dispersion of relative prices evidence from the chinese hyperinflation of 1946 1949 abstract this paper uses data from the chinese hyperinflation of 1946 1949 to focus on the relationship between the variability in the general price level and the dispersion in relative prices the issue is important because it bears on the natural rate hypothesis which supports the postulate that these two monetary variables are independent our results reinforce the bulk of previous evidence which suggests a positive correlation between the variation in inflation rate and the dispersion in relative prices during inflationary episodes

inflation and relative price variability in yugoslavia abstract granger causality tests show that inflation granger causes relative price variability but the feedback relationship cannot be excluded

inflation fixed cost of price adjustment and measurement of relative price variability theory and evidence in an interesting paper julio rotemberg 1983 extends the works of eitan sheshinski and yoram weiss 1977 and michael mussa 1981 to examine the aggregate consequences of monetary growth in an economy in which sellers incur a fixed cost of price adjustment the fixed cost prevents a continual adjustment of individual prices so each seller keeps his price constant in periods of discrete length increasing his price in discrete jumps at the end of these periods a central feature of the inflationary process is therefore that relative prices become dispersed around their means and the theory predicts that even a fully anticipated inflation increases the variability of relative prices the empirical evidence on this point does however appear to be mixed on the one hand richard parks 1978 and stanley fischer 1981a b 1982 conclude that anticipated inflation does increase relative price variability which fischer interprets as providing empirical support for the theory on the other hand mario blejer 1981 1983 and blejer and leonardo leiderman 1982 find that anticipated inflation has no effect or only a very weak effect on relative price variability which makes john taylor 1981 doubt the quantitative significance of the theory 2 this paper uses rotemberg s theoretical framework to demonstrate that the proxy for relative price variability adopted in the empirical literature does not properly capture the relative price variability that is caused by a fixed cost of price adjustment the methodology of the above cited studies is therefore not appropriate for evaluating the empirical relevance of the fixed cost theory and the divergence of their results is not surprising specifically the proxy which consists of the variance of the rates of price change between successive observations does not always increase with the anticipated inflation even with disaggregate data 3 the proxy decreases with the anticipated inflation in approximately half of any interval of inflation rates for which a seller adjusts his price no more than a given number of times between successive observations moreover the relationship between the anticipated inflation and the proxy depends on such extraneous factors as the timing of the observations a change in the timing may change a positive relationship between the anticipated inflation and the proxy to a negative one and vice versa the paper also proposes alternative more satisfactory measures of relative price variability and provides empirical support for the theoretical conclusions

relative price changes as aggregate supply shocks this paper proposes a theory of supply shocks or shifts in the short run phillips curve based on relative price changes and frictions in nominal price adjustment when price adjustment is costly firms adjust to large shocks but not to small shocks and so large shocks have disproportionate effects on the price level therefore aggregate inflation depends on the distribution of relative price changes inflation rises when the distribution is skewed to the right and falls when the distribution is skewed to the left we show that this theoretical result explains a large fraction of movements in postwar u s inflation moreover our model suggests measures of supply shocks that perform better than traditional measures such as the relative prices of food and energy

the on the run liquidity phenomenon abstract we test the implications of a model of multi asset speculative trading in which liquidity differentials between on the run and off the run u s treasury bonds ensue from endowment shocks in the presence of two realistic market frictions information heterogeneity and imperfect competition among informed traders and a public signal our evidence suggests that i off on the run liquidity differentials are economically and statistically significant even after controlling for several of the bonds intrinsic characteristics such as duration convexity repo rates or term premiums and ii off on the run liquidity differentials are smaller immediately following bond auction dates and larger when the uncertainty surrounding the ensuing auction allocations is high when the dispersion of beliefs across informed traders is high and when macroeconomic announcements are noisy consistent with our model

corporate acquisitions a theory of special cases a review of event studies applied to acquisitions mergers occur when an acquiring firm and a target firm s agree to combine under legal procedures established in the states in which the merger participants are incorporated a tender offer is an offer to purchase a proportion of the outstanding shares of the target firm at specified terms on or before a specified date those shareholders not tendering their shares retain an ownership interest in the firm the term acquisition is used in a generic sense to refer to any takeover economists especially those specializing in industrial organization have theories to explain the motivations for horizontal acquisitions and to a lesser extent vertical acquisitions however conglomerate acquisitions appear to present problems to some economists and governmental organizations the literature on mergers is replete with studies which evaluate the impact of acquisitions on the participants the original studies consider the impact of mergers on the risk of the resulting firm and on its profitability in investigating these isssues the pre and post acquisition behaviour of both bidders and targets is examined and there is an attempt to isolate and measure the impact of the acquisition from other events that affect the firm performance measures are based either on accounting data or on stock price reactions to the acquisition to identify acquisition specific influences comparisons of the merger sample to a non merger control group are used these studies are seriously compromised for the following reasons accounting data do not provide information on the expected long run impacts of the acquisition on the participants there are serious problems in defining a comparable control group and the comparison group does not provide information on how the specific firms would have performed without the acquisition this review focuses on those studies which utilize stock market data and measure the performance of merger participants over the acquisition period as

on the anatomy of inflation the variability of relative commodity prices in argentina there is substantial evidence indicating that the inflationary process is not neutral with respect to the structure of relative prices a1though real variables also affect the distribution of commodity prices the variability of relative prices appears to be largely increased by monetary phenomena the general picture emerging from the empirical literature links the cross sectional variability of commodity prices to the variability of the aggregate rate of inflation over time to the rate of unexpected inflation and to the rate of monetary expansion 1 most studies however have dealt with low inflation countries for which it is more difficult to isolate real from monetary effects on relative price changes the purpose of this paper is to analyze in detail the characteristics of relative price behavior within the context of very rapid and variable inflation using disaggregated monthly data for argentina a number of specific aspects of that country s

relative price variability and inflation a disaggregated analysis relative price variability has been studied at the cross sectional intermarket level this paper addresses the equally important phenomenon of intramarket variability the dispersion of commodity price movements around the industry average using quarterly price data for 80 disaggregated commodity groups in the united kingdom from 1974 to 1984 the paper investigates the determinants of intramarket price variability and replicates some previous crosssectional tests for the united kingdom intermarket price variability is found to be positively related to inflation which confirms previous results for the united states and other countries intramarket variability is found to be positively related to the average market rate of price change but the strength of this relationship appears to be inversely related to the level of industry concentration these results generally support the propositions and findings reported by stigler and kindahl

how quickly do forecasters incorporate news evidence from cross country surveys using forecasts from consensus economics inc we provide evidence on the efficiency of real gdp growth forecasts by testing whether forecast revisions are uncorrelated as the forecast data used are multi dimensional 18 countries 24 monthly forecasts for the current and the following year and 16 target years the panel estimation takes into account the complex structure of the variance covariance matrix due to propagation of shocks across countries and economic linkages among them efficiency is rejected for all 18 countries forecast revisions show a high degree of serial correlation we then develop a framework for characterizing the nature of the inefficiency in forecasts for a smaller set of countries the g 7 we estimate a var model on forecast revisions the degree of inefficiency as mananifested in the serial correlation of forecast revisions tends to be smaller in forecasts of the usa than in forecasts for european countries our framework also shows that one of the sources of the inefficiency in a country s forecasts is resistance to utilizing foreign news thus the quality of forecasts for many of these countries can be significantly improved if forecasters pay more attention to news originating from outside their respective countries this is particularly the case for canadian and french forecasts which would gain by paying greater attention than they do to news from the usa and germany respectively

inflation and relative price variability abstract theoretical explanations of the inflation relative price variability relationship are often observationally equivalent this paper compares two theoretical models menu costs and imperfect information the microfoundations of the models are used to generate new testable differences between the theories

the price of government ownership a study of the domtar takeover abstract this paper presents an analysis of how government ownership of an enterprise may affect its profitability in august 1981 two quebec crown corporations announced that they had gained control of domtar a private canadian corporation upon receipt of this information the stock s market value dropped significantly over six trading days domtar s shareholders suffered cumulative abnormal returns of minus 25 percent which is equivalent to a reduction in market value of approximately 150 million much of this loss can be attributed to government control and the anticipated pursuit of non profit objectives

institutional investment mergers and the market for corporate control the increasing importance of institutional investors as shareholders in individual companies has led to an important debate on their impact on corporate performance in this paper we focus on their role in the market for corporate control this has so far been the subject of very little systematic investigation despite its theoretical and practical significance we consider the impact of financial institutions using two u k merger samples and employing both univariate and multivariate techniques of analysis in the first sample drawn from the low merger period 1981 1983 pre and post merger differences are found between merging companies with and without a significant institutional presence however in the takeover boom year of 1986 from which the second sample is drawn all such distinctions become blurred

news and noise in g 7 gdp announcements revisions to gdp announcements are known to be quite large in all g 7 countries quarterly growth rate revisions are regularly more than a full percentage point at an annualized rate we examine the predictability of these revisions using standard statistical tests of whether the preliminary announcement is a rational forecast of the subsequently revised data previous work suggests that u s gdp revisions are largely unpredictable as would be the case if the revisions reflect news not available at the time that the preliminary number is produced we find that the degree of predictability varies throughout the g 7 although we find little predictability in u s revisions the data revisions for several foreign countries are highly predictable we also perform a simple real time forecasting exercise showing that for several countries the predictability of data revision could be used to generate improved preliminary data