geopolitics and the dollar abstract in this paper coefficients relating the real dollar exchange rates of 11 industrialized democracies to us defense expenditures are found to be a function of geopolitical national security variables these findings support the hypothesis that safe haven investment decisions have affected real dollar exchange rates over the 1973 86 period

political risk national defense and the dollar the federal reserve board s trade weighted real exchange rate index is highly correlated with the u s defense budget share of gnp this paper provides evidence that the correlation is not spurious political risk associated with holding wealth in the united states varies inversely with u s military security and due to the soviet military threat to the west is a major argument in foreign asset demand functions

evidence on the choice of inventory accounting methods lifo versus fifo in this paper we describe various systematic properties of lifo and fifo firms accounting numbers included are assessments of these properties for firms reported annual numbers and for their as if counterparts obtained by estimating what lifo fifo firms would have reported had they used the fifo lifo inventory method instead our purpose in conducting these assessments is to provide additional evidence on tax and nontax explanations of firms choices of inventory accounting methods in the next subsection we elaborate on these two classes and suggest that the nontax explanations may have attracted adherents partly because existing empirical evidence is not entirely consistent with the tax explanation of lifo fifo choices of inventory accounting methods although data limitations prevent us from performing direct tests of these alternative explanations our empirical results

further evidence on the marginal gains in accuracy of alternative levels of specificity of the producer price indexes in the process of evaluating the reliability of the current cost data required to be disclosed by its statement no 33 fasb 1979 the financial accounting standards board fasb is soliciting empirical evidence on the accuracy of price indexes for estimating the current cost of machinery and equipment see fasb 1983 sunder and waymire 1983 presented some preliminary evidence that the marginal gains in accuracy from increasing the specificity of price indexes utilized as measurement techniques for three approximations of the u s economy were not substantial their hypothetical economies consisted of portfolios of 15 68 and 199 commodities represented by selected price indexes from the two digit three digit and four digit producer price indexes ppi respectively most of the indexes they selected represent inventorytype commodities in the absence of actual price data the sunder and waymire 1983 methodology provides a means to assess only the relative efficiency of various aggregations of the ppi to estimate the current costs of assets

a test for subadditivity of the cost function with an application to the bell system stable url http links jstor org sici sici 0002 8282 28198409 2974 3a4 3c615 3aatfsot 3e2 0 co 3b2 rthe american economic review is currently published by american economic association your use of the jstor archive indicates your acceptance of jstor s terms and conditions of use available athttp www jstor org about terms html jstor s terms and conditions of use provides in part that unless you have obtainedprior permission you may not download an entire issue of a journal or multiple copies of articles and you may use content inthe jstor archive only for your personal non commercial use please contact the publisher regarding any further use of this work publisher contact information may be obtained athttp www jstor org journals aea html each copy of any part of a jstor transmission must contain the same copyright notice that appears on the screen or printedpage of such transmission the jstor archive is a trusted digital repository providing for long term preservation and access to leading academicjournals and scholarly literature from around the world the archive is supported by libraries scholarly societies publishers and foundations it is an initiative of jstor a not for profit organization with a mission to help the scholarly community takeadvantage of advances in technology for more information regarding jstor please contact support jstor org http www jstor orgmon jul 2 16 52 19 2007

price and productivity change following deregulation the u s experience no real world market is likely to be perfectly contestable anymore than it is to be perfectly competitive yet like its predecessor the contestability benchmark proves highly useful as a framework for evaluating policies and outcomes under the contestability framework entry and price regulation is deemed inappropriate in industries which do not have system wide natural monopoly characteristics on this criterion brokerage airline trucking long distance telephone and terminal equipment should not be regulated true these industries may be characterised by some elements of scale economy such as economies of vehicle size so that at some level city pair routes only a few firms may serve but industry performance need not suffer in such an unregulated environment impediments to entry and exit not concentration or scale of operations may be the primary source of prices that are not welfare optimal even in the presence of natural monopoly characteristics it is important to isolate those markets which are not yet structurally competitive as in the case of coal shipments over which the railroads are judged to possess market dominance or in local telephone service it can be argued that the latter should continue to be overseen by regulators while markets which are controlled by competitive forces deriving from actual or potential competition or taking other indirect but effective forms should be free from traditional regulation thus unlike privatisation policy in the united kingdom described in the companion article by kay and thompson i985 us deregulatory policy can be construed as having a coherent rationale the nature and extent of deregulation match remarkably well with the policy prescription of the theory this paper analyses the consequences that have emerged under deregulation in terms of the following behavioural properties predicted by multi product competition and contestability theory a variety of products will emerge each of which will yield zero economic profit the revenues from any subset of the products must exceed the incremental costs of those products so that no cross subsidy can exist prices for each product will equal or exceed marginal costs and an equilibrium market structure will minimise costs for the industry see baumol

a goal programming constrained regression review of the bell system breakup the recently implemented court decision to break up bell american telephone telegraph co to accord with u s anti trust laws represents a highly significant policy decision which is proving to be influential in other countries as well as the u s the telecommunication industry is of such size and importance that even relatively small economies that might be lost with bell s breakup as a natural monopoly could involve substantial welfare losses to consumers and producers studies commissioned by the u s justice department that approached this topic by econometric methods reported that the evidence failed to support the contention that bell was a natural monopoly here a goal programming constrained regression as developed in the management science literature uses the same functional form and the same data but nevertheless reverses the main findings of the econometric studies in every one of the 20 years covered this kind of difference in results obtained by two different methods of analysis poi

the public accounting industry production function abstract a translog function is specified to represent the relation between revenue and human resource inputs in public accounting firms estimation of the model using a balanced panel of annual data for 64 large cpa firms for the period 1995 1999 indicates that increasing returns to scale prevail in the public accounting industry justifying recent merger and acquisition activities among accounting firms average marginal revenue product of partners increased monotonically from 1995 to 1998 decreased slightly in 1999 and was about nine times that of other professionals during 1995 1999 the public accounting industry exhibited continuing improvement in productivity over the 5 years

industrial structure in us telecommunications some empirical evidence the telecommunications industry in the us is re assessed using a methodology which incorporates new developments in time series analysis the issue of natural monopoly is re considered with a view to the validation of the use of applied econometry in the fields of divestiture and industrial policy recent developments in us telecommunications are considered and incorporated into the model

politics and exchange rate forecasts abstract standard exchange rate models perform poorly in out of sample forecasting when compared to the random walk model we posit part of the poor performance of these models may be due to omission of political factors we test this hypothesis by including political variables that capture party specific election specific and candidate specific characteristics surprisingly we find our political model outperforms the random walk in out of sample forecasting at 1 12 month horizons for the pound dollar mark dollar pound mark and the trade weighted dollar mark and pound exchange rates

comovements of budget deficits exchange rates and outputs of traded and non traded goods i introduction the total united states budget deficit was roughly zero at the beginning of 1981 after some ups and downs the deficit reached 140 billion in early 1985 and remained high compared to deficit levels experienced in peacetime years prior to 1981 during the period 1981 1985 the u s dollar appreciated sharply relative to foreign currencies in both nominal and real terms the current account of the u s balance of payments moved from a surplus of 6 0 billion in 1981 into a series of large recurrent deficits reaching an annual rate of 120 billion by mid 1985 the simultaneous occurrence of these events suggests that budget deficits cause a country s currency to appreciate which in turn reduces the country s international competitiveness stories are reported in the popular financial press and conventional wisdom is used to link these events using the identities of national income accounts it is shown that budget deficits must crowd out domestic spending by raising the domestic saving investment gap in addition the deficits can be financed by the rest of the world through the generation of a deficit in the current account of the balance of payments typically it is argued that the rise in the rate of interest and real appreciation of the dollar are necessary in order to bring about the saving investment gap and the current account deficit needed to finance the large u s budget deficits this paper attempts to provide an alternative structural explanation of these comovements in exchange rates and government budget deficits my model expands on previous work to include fiscal policy considerations in a stochastic setup it shows that within a simple two country cash in advance constraint model it is possible to have a positive correlation between increases in the budget deficit and exchange rate appreciation additionally it is possible to have a negative correlation between exchange rate appreciation and a reduction in domestic traded goods production the implication then is that the usual twin deficits argument about the linkages between budget deficits exchange rates and trade deficits is only one of a number of possible explanations of the correlations that appear in the data of the 1980s the model i have used in this paper is as far as i know the first international general equilibrium monetary asset pricing model with endogenous budget deficits most of the explanations that relate exchange rates and the federal government s budget deficit or the trade deficit are based on a particular disequilibrium theory of exchange rates the model of this paper however is based on an equilibrium model of exchange rates it is based on simple economic principles it uses the national accounts definition of the government s nominal budget deficit as an increase in the dollar value of the government s holdings of money and bonds a change in the domestic productivity of traded goods and the money supply yields a change in both the nominal price of bonds and the government budget deficit a change in the supply of domestically produced traded goods also yields changes in their relative price the real exchange rate repeated disturbances to the supply of traded goods and the money supply create a correlation between budget deficits and real exchange rates recently branson and love 1988 and ceglowski 1989 among others blame the real exchange rate as the primary cause of u s industries weak performance in the 1980s it is important to realize the real exchange rate itself is an endogenous variable its behavior as i will show is a result of underlying economic changes hence it is incorrect to blame decreased u s competitiveness on the real exchange rate moreover most popular models which presume a relationship between budget deficits and real exchange rates attribute no role to the monetary sector this paper demonstrates the importance of bringing both monetary and real sectors into the model in order to analyze such relationships

rejoinder natural monopoly and the bell system response to charnes cooper and sueyoshi our study of the bell system cost function shows that it is possible to reject the hypothesis that at t was a natural monopoly our study is based on a regression analysis of a translog cost function estimated on 1947 1977 data charnes cooper and sueyoshi charnes a w w cooper t sueyoshi 1988 a goal programming constrained regression review of the bell system breakup management sci 34 1 26 claim that they reverse our conclusion when they use goal programming estimators of a translog cost function estimated on exactly the same data that we use this claim is false there is no basis for comparing our estimates with their estimates because they in fact use different data than we use and estimate a different cost function than we estimate moreover when goal programming estimates and regression estimates based on the same data and similar cost function specifications are compared they yield similar estimates and produce the same inference about natural monopoly

accuracy of linear valuation rules in industry segmented environments industry vs economy weighted indexes abstract the comparative ability of valuation rules using economy weighted versus industry weighted price indexes to estimate the unobserved economic value of a basket of assets in modelled industry weighted indexes do not necessarily provide valuations of higher accuracy than economy weighted indexes dominance depends on 1 the relative magnitude of the mean and variability of price changes and 2 the magnitude of errors of measurement in the current price data larger measurement errors favor economy weighted indexes larger mean and variability of prices changes favor industry weighted indexes

stock price effects of the allowance of lifo for tax purposes abstract i investigate stock price behavior associated with the allowance of lifo for tax purposes the analysis is structured as an event study of the revenue acts of 1938 and 1939 the results indicate a positive net market reaction to legislative events leading to lifo s incorporation into the us tax code for the sample firms having the largest estimated lifo tax benefits i conclude the market revised its probabilities that firms most likely to benefit would avail themselves of the opportunity to use lifo and defer taxes on inventory profits

u s military expenditure and the dollar u s military expenditure and the dollar i introduction many recent contributions have tried to explain fluctuations in the real exchange rate of the dollar against major currencies most of all the japanese yen and the deutsche mark among these ayanian 1987 studies whether political risk is one fundamental variable to which the value of the dollar can be anchored he argues that an increase in military expenditure in the united states should increase the foreign demand for dollar denominated assets based on a safe haven argument and appreciate the dollar ayanian claims that this kind of relationship exists between the fed real exchange rate index and defense expenditure as a percentage of gnp for 1973 85 this paper applies techniques recently developed in the nonstationary time series literature we believe this to be the correct way to analyze problems related to the real exchange rate the use of a longer time period and a slightly different specification of the real exchange rate equation shows that ayanian s safe haven argument can indeed be justified by the data the rest of this paper is organized as follows section ii describes the essential features of the methodology used to analyze the relationship between the real exchange rate and expenditure on military defense the third section discusses the choice of the data and the sample period section iv reports results and section v concludes ii nonstationary time series econometrics the work of nelson and plosser 1982 showed that a large number of economic time series can be described in terms of nonstationary stochastic processes of the form y sub t mu alpha y sub t 1 u sub t where mu is a constant drift a 1 and u is an error term if u is an identically and independently distributed series then y sub t is a random walk in general such a representation is known as an integrated process of order one or i 1 phillips 1986 gave a theoretical foundation to some of the findings of granger and newbold 1974 and showed that a spurious relation can emerge when an i 1 process is regressed against another i 1 process thus two nonstationary series may not interact with each other even if the coefficients of the regression are significant according to the traditional t test in fact in this case the usual t ratio does not have a limiting distribution but actually diverges as the sample size increases see phillips 1986 the correct econometric methodology for i 1 variables has recently been explored in engle and grager 1987 under the name of cointegration consequently it is of considerable importance to decide whether a series is i 0 sup 1 or i 1 before doing any empirical work phillips 1987 and phillips perron 1986 developed tests of nonstationarity that generalize the original test used in the nelson plosser study the dickey fuller or the augmented dickey fuller test and other tests proposed in dickey fuller 1981 the new test is more general in that it allows for some degree of autocorrelation and heteroskedasticity in the evolution of the error term u if the hypothesis of nonstationarity can be rejected then standard econometric procedures can be applied if not the theory of cointegration may provide useful information about the relationship between the variables under study two variables x and y are cointegrated if they are individually of order i 1 but can be linearly combined in a way that the residuals from such linear combination are of order i 0 that is stationary this means that each series taken by itself has a tendency to drift apart but that there is some relationship between the two which link one to the other this linear combination can be interpreted as a long run equilibrium relationship moreover granger and engle 1987 showed that if x and y are i 1 and are cointegrated there will always exist an error correction representation of these variables of the following form delta x

empirical models of the exchange rate separating the wheat from the chaff various popular exchange rate models a standard monetary model a portfolio balance model and sticky price models are estimated and evaluated using u s canadian data for the 1970s nonnested hypothesis tests demonstrate that none are correctly specified the data suggest 1 the exchange rate persistence observed is not fully explained by any of the models 2 the small durbin watson statistics indicate longer lags are required 3 the current account is a useful explanatory variable 4 the portfolio balance model fits the data well but has potentially serious problems measuring the stock of foreign assets this abstract was borrowed from another version of this item

tests of the performance of reduced form exchange rate models this study analyzes the performance of reduced form exchange rate models through a number of tests of specification stability and prediction it confirms earlier tests showing that monetary models do not perform well but it finds more positive results for other models some portfoliobalance models are sufficiently stable to do better than a random walk in post sample tests the study concludes that monetary models are unduly restrictive in the way they incorporate purchasing power parity and perfect asset substitutability