money anticipated changes and policy effectiveness the lucas sargent wallace l s w proposition states that expected policy changes have no influence on real economic variables even in the short run see robert lucas 1972 and thomas sargent and neil wallace 1975 one form of empirical test of the l s w proposition the neutrality proposition began with robert barro s 1977 1978 seminal articles supporting the neutrality proposition however more recent papers including those by david small 1979 john makin 1982 and frederic mishkin 1982a b have reexamined the relationships between anticipated and unanticipated money vs output unemployment and inflation and have found evidence suggesting that anticipated monetary changes do have real effects all of the above cited studies use expectations procedures which estimate for example a money growth equation over the entire period under consideration however this approach assumes that when expectations are being formed at the beginning of the period economic agents have the relevant information for the entire period in this note i reexamine the impact of expected vs unexpected monetary changes focusing on the informational restrictions actually faced by economic agents when formulating expectations the structure of the model used here is similiar to the models of barro and mishkin a measure of real output is assumed to be a function of a policy variable and a vector of predetermined variables the policy variable can be decomposed into anticipated and unanticipated components algebraically

an empirical analysis of state and private sector provision of water services in africa under pressure from donor agencies and international financial institutions such as the world bank some developing countries have experimented with the privatization of water services this article reviews the econometric evidence on the effects of water privatization in developing economies and presents new results using statistical data envelopment analysis and stochastic cost frontier techniques and data from africa the analysis fails to show evidence of better performance by private utilities than by state owned utilities among the reasons why water privatization could prove problematic in lower income economies are the technology of water provision and the nature of the product transaction costs and regulatory weaknesses

privatisation in developing countries a review of the evidence and the policy lessons privatisation is widely promoted as a means of improving economic performance in developing countries however the policy remains controversial and the relative roles of ownership and other structural changes such as competition and regulation in promoting economic performance remain uncertain this article reviews the main empirical evidence on the impact of privatisation on economic performance in developing economies the evidence suggests that if privatisation is to improve performance over the longer term it needs to be complemented by policies that promote competition and effective state regulation and that privatisation works best in developing countries when it is integrated into a broader process of structural reform

intraday technical trading in the foreign exchange market this paper examines the out of sample performance of intraday technical trading strategies selected using two methodologies a genetic program and an optimized linear forecasting model when realistic transaction costs and trading hours are taken into account we find no evidence of excess returns to the trading rules derived with either methodology thus our results are consistent with market efficiency we do however find that the trading rules discover some remarkably stable patterns in the data

answering the skeptics yes standard volatility models do provide accurate forecasts a voluminous literature has emerged for modeling the temporal dependencies in financial market volatility using arch and stochastic volatility models while most of these studies have documented highly significant in sample parameter estimates and pronounced intertemporal volatility persistence traditional ex post forecast evaluation criteria suggest that the models provide seemingly poor volatility forecasts contrary to this contention we show that volatility models produce strikingly accurate interdaily forecasts for the latent volatility factor that would be of interest in most financial applications new methods for improved ex post interdaily volatility measurements based on high frequency intradaily data are also discussed

the information content of security prices a second look abstract beaver lambert and morse 1980 employ a regression of percentage change in prices on percentage change in earnings in which data are grouped by the dependent variable reverse regression offers a more intuitive and direct way to assess the information content of security prices the objective of beaver et al while grouping is asymptotically equivalent reverse regression is a more efficient way of examining the incremental explanatory power of lagged values of percentage change in price with respect to accounting earnings

information in prices about future earnings abstract stock return over a period reflects the market s revision in expectation of future earnings accounting earnings over the same period however have limited ability to reflect such revised expectations therefore returns anticipate earnings changes and the earnings response coefficient from a regression of returns on contemporaneous earnings changes is biased toward zero we reduce this bias by including leading period returns in price earnings regressions the resulting estimated earnings response coefficient magnitudes suggest that the capital market on average views earnings changes to be largely permanent this is consistent with the random walk time series property of annual earnings

another look at the role of the industrial structure of markets for international diversification strategies abstract this paper re examines the extent to which gains from international diversification are due to differences in industrial structure across countries recent papers by roll 1992 journal of finance 47 3 42 and heston and rouwenhorst 1994 journal of financial economics 36 3 27 investigate this issue and find conflicting evidence using a new database the dow jones world stock index with coverage in 25 countries and over 66 industry classifications we decompose comprehensively both country and industrial sources of variation we confirm that little of the variation in country index returns can be explained by their industrial composition we also uncover differences in the proportion of variation in industry index returns that is captured by country and industry factors and discuss the implications for global diversification strategies

monetary information and monetary neutrality abstract the monetary theory of business fluctuations in market clearing models constructed under the rational expectations assumption as advanced by lucas and others involves the idea that suppliers and demanders will typically misinterpret movements in the general level of prices as representing more or less favorable relative opportunities for real activities the present paper examines the consequences of agents possessing contemporaneous monetary information of a potentially noisy variety for the non neutrality of unanticipated monetary events within such an equilibrium business cycle model this modification of the information structure has the strong testable implication that real activity will be uncorrelated with contemporaneous monetary data

infrastructure and public utilities privatization in developing countries should governments in developing countries promote private ownership and deregulated prices in noncompetitive sectors or should they run publicly owned firms and regulate prices at the expense of rents to insiders a theoretical model is used to answer these normative questions the analysis focuses on the tradeoff between fiscal benefits and consumer surplus during privatization of noncompetitive sectors privatization transfers control rights to private interests and eliminates public subsidies yielding benefits to taxpayers at the cost of increased prices for consumers in developing countries where budget constraints are tight privatization and price liberalization may be optimal for low profitability industries but suboptimal for more profitable industries and once a market has room for more than one firm governments may prefer to regulate the industry without a credible regulatory agency regulation is achieved through public ownership

the evolution of infrastructure and utility ownership and its implications the paper documents the significant changes of ownership since the infrastructure utilities were privatized and in particular the shifts from the initial focus on dispersed retail share ownership through takeovers to more concentrated ownership and the emergence of private equity and infrastructure funds in the process there has been substantial financial engineering and balance sheets have been geared up towards exhaustion with major implications for financing future investment increased gearing has on the one hand introduced the discipline of debt upon management which had engaged in substantive diversification and on the other provided an arbitrage between the weighted average cost of capital used to calculate the allowed return and the lower marginal cost of debt the paper shows how regulation has determined the allocation of risk and facilitated the observed changes in ownership and financial structures three solutions to the exhausted balance sheets are considered to finance future investment rate of return regulation the split cost of capital and a collapse back into not for dividend mutual or state ownership the default outcome already witnessed in the welsh water and network rail cases is the latter case which is inferior to the second option copyright 2009 oxford university press

the applicability of the traditional theory of economic policy abstract the traditional theory of economic policy requires targets instruments an empirical economic model and a social welfare or criterion function to be specified in order to derive the optimal economic policy empirical studies of reaction functions suggest that economic policy is carried out in some systematic manner subject to interference from political factors this survey addresses the problems of specifying estimating and applying an economic model when economic policy is following a path specified by a reaction function attention is paid to rational expectations the lucas critique and the policy neutrality proposition lack of knowledge of the policy maker s objective function poses the most serious difficulty when applying the theory of economic policy various methods of determining this function are reviewed and the possibility that policy makers might be satisficing is discussed the role played by political factors is considered in the light of the public choice literature

corporate earnings facts and fiction investors cone dence in the quality and integrity of corporate e nancial reports has been seriously shaken of late the ever increasing procession of headlines about fraudulent earnings ine ated asset values and understated liabilities reported by erstwhile leading companies the likes of enron tyco worldcom xerox and a host of lesser household names all audited by major accounting e rms suggests systematic dee ciencies in the accounting standards and governance systems that generate e nancial information of public companies not to mention in the regulatory systems overseeing them both aggregate data and cross sectional research cone rm the anecdotal evidence that the correspondence to reality of reported earnings deteriorated throughout the 1990s for example the gap between aggregate earnings and taxable corporate income which abstracts according to internal revenue service rules from most estimates and provisions often used to manipulate earnings has been continuously widening throughout the 1990s desai 2002 also increasing during the 1990s was the gap between earnings and the corporate proe ts reported in the national income and product accounts which are based on e rms taxable income adjusted for current values of inventory and depreciation while part of the difference between earnings and taxable income is probably due to increasing corporate sophistication of tax management manipulation of earnings played a major role in the widening gap lev and nissim 2002a firm specie c data corroborate the increasing vulnerability of earnings to manipulation the number of earnings restatements by public companies often in the wake of admitted reporting improprieties has skyrocketed in the last three to four years wu 2002 also the frequency of e rms beating analysts forecasts of

permanent versus transitory components of annual earnings and estimation error in earnings response coefficients abstract previous research has generally estimated unexpected earnings as the change relative to the previous year assuming that shocks to annual earnings are purely permanent in the presence of transitory components of annual earnings we predict that using earnings changes as a proxy for unexpected earnings causes earnings response coefficients to be understated and the estimation error to be negatively cross sectionally correlated with persistence the negative correlation causes the association between earnings response coefficients and persistence to be overstated we use the ima 1 1 model to capture transitory components of annual earnings and obtain results that are consistent with our predictions

infrastructure privatization and changes in corruption patterns the roots of public discontent abstract this paper offers a theory of how the degree of corruption that prevails in a society responds to changes in the ownership structure of major public service providers we show that there are cases in which privatization even though it fosters investments in infrastructure also opens the door to more corruption the public dissatisfaction towards privatization is then crucially affected by the changes in the degree and pattern of corruption our model thus helps understand the seemingly paradoxical situation prevailing in latin america where most studies find that privatizations have been efficiency enhancing and have fostered investments and at the same time popular dissatisfaction with the process is extremely high especially among the middle class we show that this line of explanation is consistent with the evidence from surveys in the region

the changing responsiveness of wages to price level shocks explicit and implicit indexation the article provides evidence for the u s over the period 1961 84 that the responsiveness of nonunion wages to price level shocks changes through time much as the degree of indexation in union contracts does suggesting that there exists implicit as well as explicit indexation when coupled with the result from previous research that indexation responds positively to inflation uncertainty the findings indicate that greater inflation uncertainty may lead to reduced overall wage rigidity in the context of a rational expectations model with long term wage contracts a decline in the effectiveness of an activist monetary policy could result

how investor portfolios shape regulatory outcomes privatized infrastructure after crises summary many developing countries privatized utilities during the 1990s their weak institutional environments however make them prone to crises that generate incentives for governments to renege on contractual commitments to investors to understand variation in post crisis regulatory outcomes in such contexts scholars must consider investors prior choices regarding portfolio structure investors facing high reputational costs from exit are more likely to remain following expropriation and those holding diverse assets in their contract jurisdiction to secure compensation these factors account for significant unexplained within sector and subnational variation for which we provide qualitative and quantitative evidence from argentina s water and electricity sectors following the 2001 crisis

corporate capital expenditure decisions and the market value of the firm abstract this paper is an event time study of the common stock prices of a sample of 658 corporations around the dates on which they publicly announced their future capital expenditure plans for industrial firms announcements of increases decreases in planned capital expenditures are associated with significant positive negative excess stock returns for public utility firm neither increases nor decreases in planned capital expenditures are associated with significant excess stock returns we interpret the evidence as being consistent with the hypothesis that managers seek to maximize the market value of the firm in making their corporate capital expenditure decisions

the association between accounting earnings and security returns for large and small firms abstract the differential information hypothesis advanced by atiase 1980 states that information production and dissemination by private parties for the purpose of identifying mispriced securities is an increasing function of firm size this study examines two corollaries of that hypothesis first security prices of large firms anticipate accounting earnings earlier than security prices of small firms second for a given level of unexpected earnings the cumulative abnormal returns of small firms exceed those of large firms the results are generally consistent with atiase s hypothesis

internal corporate restructuring abstract firms that alter their divisional configurations on average increase shareholder wealth gains appear to come from information about investment opportunities and increases in efficiency performance before the restructurings suggests poorly organized firms are motivated by market pressures to change their organizations change also occurs in healthy firms as part of the growth process restructuring often occurs where there is no evidence of takeover threats while stock prices increase around the restructurings there is a contemporaneous decline in earnings due to increased expenses these findings appear inconsistent with the contention that the market pressures managers into focusing on short run earnings

earnings as an explanatory variable for returns in this paper we investigate whether the level of earnings divided by price at the beginning of the stock return period is relevant for evaluating earnings returns associations the primary model motivating this research relies on the idea that book value owners equity and market value are both stock variables indicating the wealth of the firm s equity holders the related flow variables after adjusting for dividends are respectively earnings divided by price at the beginning of the return period a p 1 and market returns it then follows that earnings divided by beginning of period price should be associated with stock returns although models based on a relation between market value and book value are used occasionally in the accounting research literature see for example landsman 1986 harris and ohlson 1987 and barth

the relation between the return interval and betas abstract the size effect is sensitive to the length of the return interval used in estimating betas beta changes with the return interval because an asset s covariance with the market and the market s variance do not change proportionately as the return interval is changed we document beta sensitivity to the return interval evidence from cross sectional regressions of returns on monthly and annual betas is inconsistent with beta changes stemming only from the higher standard errors of the longer interval betas we provide evidence that the size effect becomes statistically insignificant when risk is measured by betas estimated using annual returns

firm size and the information content of prices with respect to earnings abstract beaver lambert and morse 1980 suggest that prices may be useful in forecasting future earnings we explore the information content of prices with respect to earnings by focusing on firm size and its relation to the predictive accuracy of price based earnings forecasts firm size proxies for the amount of information and for the number of traders and professional analysts processing the available information about an enterprise our empirical results are consistent with the hypothesis that price based earnings will outperform univariate time series forecasts by a greater margin for larger firms than for smaller firms

the pitfalls of water privatization failure and reform in malaysia summary this paper examines why private participation in infrastructure ppi in water continues to be promoted despite poor results in developing countries it argues that the main characteristics of infrastructure discourage private investment and necessitate state subsidies which dilute private risks and incentives and facilitate rent seeking as a result ppi is characterized by public financing selective private investments and inconclusive efficiency gains this is reflected globally and in malaysia where ppi continues to be promoted because it provides captive rents the political factors that drive ppi invariably compromise institutional solutions as malaysia s water sector reforms illustrate

fair value disclosures by bank holding companies abstract this paper examines the value relevance of fair value data disclosed under sfas 107 by banks for 1992 and 1993 collectively the evidence suggests differences between fair and book values of financial instruments are associated with market to book ratios however fair value disclosures for financial instruments other than securities are value relevant only in limited settings in addition only in 1992 are fair value variables associated with market to book ratios after incorporating existing historical cost information further analysis suggests the weaker 1993 results are not necessarily due to increased measurement error in fair value numbers

econometric issues in macroeconomic models with generated regressors the paper critically reviews the literature on the econometric issues raised by the use of generated regressors gr in empirical models the economic rationale for the use of gr is considered with examples being drawn from several macroeconomic examples including new classical macroeconomic ncm models which postulate monetary neutrality various estimation methods are discussed for models which include surprise or unexpected terms and the strengths and weaknesses of each approach are investigated drawing upon the work of mcaleer and mckenzie 1991 situations where the typically inefficient two step estimation 2se method will be efficient are highlighted problems of model misspecification and measurement errors are also investigated an empirical section highlights some of the dangers of using uncorrected 2se estimation results through a careful consideration of many recent attempts to test the ncm monetary neutrality hypothesis copyright 1993 by blackwell publishers ltd

trading rule profits in european currency spot cross rates abstract the moving average ma trading rule is applied to six european spot cross rates jy bp dm bp jy dm sf dm sf bp and jy sf to see if opportunities for profitable trading exist the results suggest that ma trading rules are marginally profitable only for the jy dm and the jy sf cross rates while trading rules are not profitable for the other four cross rates bootstrapping and out of sample tests provide similar results examination of subsamples characterized by central bank intervention do not produce different results computation of box pierce statistics adjusted for heteroscedasticity show that daily returns for all six cross rates are serially uncorrelated overall the results suggests that cross rates are sufficiently transparent to eliminate ma trading rule profit

economic perspectives on privatization despite being one of the most fundamental issues in political economy the question of the appropriate boundary between public and private enterprise received relatively little attention in mainstream economic analysis until quite recently in the 1980s however programs of ownership reform were started in many developed and developing countries dramatic though some of these policies have been they are likely to be overshadowed in the 1990s by even greater privatization in the reforming socialist economies the opening sections of this paper are organized around three broad and interrelated questions how does ownership matter for the efficiency of enterprise performance what is the role for privatization in financing public debts and deficits what are the distributional and political implications of privatization finally we examine privatization in practice in three countries britain chile and poland

the performance of privatised enterprises in developing countries abstract privatisation has been advocated as the predominant way to solve the problems facing ailing public enterprises in developing countries despite this the policy remains controversial the available empirical evidence on the operational and financial performance of enterprises after privatisation has often painted a rosy picture this paper reassesses the situation using a larger sample of enterprises and a comparative perspective between privatised utilities non utilities and private enterprises that have never been state owned the results of our analysis point to there being differences in the performance across the three groups of enterprises and in particular to a deterioration in performance among privatised utilities this suggests that the earlier optimism over the efficacy of privatisation may have been premature

central bank intervention and trading rule profits in foreign exchange markets abstract moving average trading rules are utilized in both futures and spot foreign currency markets to show that significant positive profits can be earned in four of five currencies examined the results are consistent for both in sample and forward simulation tests regression results demonstrate that central bank intervention is strongly associated with the profitability of trading returns for the three major currencies dm yen and pound and partially explains returns for the sf and cd consistent with conjectures in previous studies that news concerning intervention tends to be revealed over weekends we find that moving average trading rule returns are significantly positive on fridays and mondays and not significantly different from zero in the middle of the week

earnings management to avoid earnings decreases and losses this paper provides evidence that firms manage reported earnings to avoid earnings decreases and losses specifically in cross sectional distributions of earnings changes and earnings we lind unusually low frequencies of small decreases in earnings and small losscs and unusually high frequencies of small increases in earnings and small positive income we find evidence that two components of earnings cash flow from operations and changes in working capital are used to achieve increases in earnings we present two theories based on stakeholder use of information processing heuristics and prospect theory about the motivation for avoidance of earnings decreases and losses

a theory of privatisation public enterprises around the world have proved to be highly inefficient primarily because they pursue strategies such as excess employment that satisfy the political objectives of politicians who control them privatization of public enterprises can raise the cost to politicians of influencing them since subsidies to private firms necessary to force them to remain inefficient are politically harder to sustain than wasted profits of the state firms in this way privatization leads to efficient restructuring of firms moreover privatization is more effective when combined with a tight monetary policy and when the new owners of firms are profit maximizing investors rather than their employees or even managers copyright 1996 by royal economic society

cross sectional dependence and problems in inference in market based accounting research this paper provides a framework and some empirical evidence to evaluate the seriousness of problems in inference that arise in stockreturn based studies when the data are cross sectionally dependent the study is motivated on the grounds that statistical procedures designed to address such problems are often infeasible and even when they can be implemented they sometimes introduce other more serious difficulties thus researchers have frequently adopted an approach that ignores the cross sectional dependence e g ordinary least squares ols the objective of this paper is to help identify the contexts in which ignoring the dependence would lead to serious misstatement of significance levels cross sectional dependence in stock returns data is likely to exist when at least some of the returns are sampled from common time periods this would be the case in all studies of the reaction of stock prices to a

asymmetric stationarity in national stock market indices an mtar analysis a procedure is developed using a momentum threshold autoregressive model and asymmetric stationarity tests designed to identify periods of asymmetric stationary divergences from nonstationary paths in time series and is applied to major national stock indices the results reveal the existence of asymmetric stationary periods in each of these indices these results suggest an explanation for the counterintuitive positive forecasting results of technical traders for various time periods we explore this possibility further by using a representative moving average technical trading strategy and find significantly different results higher returns when information from the procedure is incorporated into a trading rule

accounting earnings and top executive compensation abstract this paper investigates the role of accounting earnings in top executive compensation contracts it provides evidence in support of the hypothesis that earnings based incentives help shield executives from market wide factors in stock prices the paper demonstrates that earnings reflect firm specific changes in value but are less sensitive to market wide movements in equity values as a result the inclusion of earnings based performance measures in executive compensation contracts helps shield executives from fluctuations in firm value that are beyond their control the hypothesis is shown to explain cross sectional variation in the use of earnings based incentives

the fall of enron the financial reporting and disclosure problems at enron as well as the high market valuations for its stock raise troubling questions about the functioning of capital market intermediaries regulators and governance experts whose are supposed to ensure the effective functioning of the stock market this paper examines the functions of key capital market intermediaries and analyzes how their own governance and incentive problems may have contributed to enron s rise and fall we conclude by proposing system modifications to resolve the observed problems

does anticipated monetary policy matter an econometric investigation a heated debate has arisen over the policy ineffectiveness proposition associate with the work of lucas sargent and wallace it postulates that anticipated aggregate demand policy will have no effect on business cycle fluctuations so that one deterministic feedback policy rule is as good as any other from the point of view of stabilizing the economy this paper develops a methodology for empirically analyzing rational expectations models displaying this neutrality result and then applies it to the important question of whether anticipated monetary policy matters to the business cycle

association between accounting performance measures and stock prices a test of the life cycle hypothesis abstract this paper posits that stock market response to two accounting performance measures sales growth and capital investment is a function of firm life cycle stage firms are grouped into various life cycle portfolios using dividend payout sales growth and age as predicted the empirical results indicate a monotonic decline in the response coefficients of unexpected sales growth and unexpected capital investment from the growth to the stagnant stages additional analysis suggests that this relation is not driven by a firm size effect risk differences or measurement error in the proxies for performance measures

the effect of accounting procedure changes on ceos cash salary and bonus compensation abstract this paper examines the effect of accounting procedure changes on cash salary and bonus compensation to ceos we estimate whether there is an adjustment to the statistical relation between compensation and corporate earnings following changes that lower earnings fifo to lifo inventory valuation and that raise earnings accelerated to straight line depreciation the results indicate that 1 subsequent to these changes salary and bonus payments are based on reported earnings rather than earnings under the original accounting method and 2 the potential compensation effect of the changes is small compared to the effect of economy or industry wide changes in compensation

financialisation and the slowdown of accumulation over the past decades financial investment of non financial businesses has been rising and accumulation of capital goods has been declining the first part of the paper offers a novel theory to explain this phenomenon financialization the shareholder revolution and the development of a market for corporate control have shifted power to shareholders and thus changed management priorities leading to a reduction in the desired growth rate in the second part the link between accumulation and financialization is tested econometrically by means of a time series analysis of aggregate business investment for usa uk france and germany extensive test of robustness are performed for the first three countries evidence that confirms the negative effect of financialization on accumulation is found author s abstract

elections and the fed is there a political monetary cycle to understand the political causes of macroeconomic policy it is necessary to examine the institutions that actually make such policy and the incentives those institutions face an explanation of the political causes of united states monetary policy must treat the various institutions that are influential in the monetary policy process which are at a minimum the federal reserve fed and the executive including the president the treasury department and other advisors in the executive office of the president the reelection motive has proven useful in modeling presidential incentives in this article i investigate whether electoral incentives associated with the theory of the political business cycle pbc can help to explain the behavior of the fed over the last quarter century the political business cycle has had a curious hold on modern political economy while the empirical evidence in favor of the cycle is far from overwhelming its theoretical importance leads to continuing empirical

market government and malaysia s new economic policy leading economic institutions such as the world bank have argued that liberalisation holds the key to growth poverty alleviation and redistribution even recent efforts to model increasing returns within the framework of new growth theories have not resulted in prescriptions for stronger roles for governments the fast growing southeast asian economies are still being used to demonstrate causation between liberalisation and growth poverty alleviation and redistribution using malaysia as an example this paper argues that growth poverty alleviation and redistribution in the country was achieved under circumstances of both interventionist policies as well as market coordination throughout the new economic policy nep period 1970 90 strong incentives were offered to both the import substitution and exportoriented manufacturing sectors and the state made strong forays into the market to redress poverty and inequality the paper also argues that poorly coordinated government intervention generated substantial unproductive rent seeking

plant closing decisions and the market value of the firm abstract we investigate the underlying causes and the announcement effects of plant closings the closing in our sample do not appear related to takeover activity instead they appear motivated by declining firm profitability firms announcing closings have lower earnings than market or industry medians earnings typically improve slightly after the announcement we find a negative stock market reaction to plant closing announcements

is technical analysis in the foreign exchange market profitable a genetic programming approach using genetic programming techniques to find technical trading rules we find strong evidence of economically significant out of sample excess returns to those rules for each of six exchange rates over the period 1981 1995 further when the dollar deutsche mark rules are allowed to determine trades in the other markets there is significant improvement in performance in all cases except for the deutsche mark yen betas calculated for the returns according to various benchmark portfolios provide no evidence that the returns to these rules are compensation for bearing systematic risk bootstrapping results on the dollar deutsche mark indicate that the trading rules detect patterns in the data that are not captured by standard statistical models

unanticipated monetary growth output and the price level u k 1946 1977 abstract this paper develops and estimates using annual data from 1946 1977 a three equation model of the u k economy in which output is affected only by unanticipated monetary growth whereas the price level is influenced by both anticipated and unanticipated changes in money supply expectations of monetary growth are assumed to be muth rational the model was estimated using efficient procedures and tests of the over identifying restrictions were generally favourable to model specification some features of the price equation are unsatisfactory and the results in this section must be considered tentative

additional evidence on bonus plans and income management abstract we extend healy 1985 by examining the relation between discretionary accruals and bonus plan bounds for a sample of 102 firms for the 1980 1990 period contrary to healy we find that when earnings before discretionary accruals fall below the lower bound managers select income increasing discretionary accruals and vice versa we believe that our results are more consistent with the income smoothing hypothesis than with healy s bonus hypothesis however mechanical selection bias in portfolio formation cannot be entirely ruled out as an alternative explanation for our results

unanticipated money growth and unemployment post sample forecasts in the late 1970s robert j barro published what has since become a popular model of business fluctuations barro s 3 findings provide evidence advocating the short run neutrality of money under rational expectations forging an important empirical link to the theoretical studies of lucas 19 20 and sargent and wallace 33 the original barro unemployment model has received additional support from further statistical testing 5 6 15 despite criticisms and modifications some of which are considered in barro s 6 updated model these equations have inspired numerous empirical studies analyzing unanticipated effects of macroeconomic variables this paper examines post sample forecasts of barro s original 3 and revised 6 unemployment equations for the 1974 84 period mayer 23 24 harvey 13 179 80 and lovell 18 among many contend that the ability to successfully forecast outside of the sample period is an important criterion for evaluating model robustness this view is also reflected in a substantial body of studies including 10 25 26 29 39 which investigate the post sample predictive performance of macroeconomic models one year ahead forecasts indicate that the barro 3 6 equations accurately predict unemployment for the 1974 79 period during 1980 84 however the predictive performance of both models sharply deteriorates augmenting the barro models with interest rate volatility in accordance with the findings of evans 11 and tatom 38 considerably improves the overall forecasting ability this modification also rectifies the 1980s structural instability of the barro unemployment equations furthermore the basic conclusions of the seminal barro work are retained with this augmented model the results reveal that increases in interest rate volatility exert significantly adverse effects upon unemployment corroborating with the findings of evans 11 and tatom 38 still interest rate volatility could be overlooked in previous estimations of the barro or other models of business fluctuations due to the variable s relative constancy prior to 1979

privatization financial development property rights and growth abstract this study analyzes how prevailing institutional arrangements i e property rights contracting rights political institutions and corporate governance practices affect privatized firms performance capital markets development and economic growth most of the studies surveyed show that privatization enhances privatized firms performance efficiency and profitability which percolates to economic growth privatized firms performed better in countries with better regulatory and legal frameworks partial privatization may be beneficial in countries with weak institutions namely the french civil law countries the stronger the economic and the governing institutions the easier it is for privatized firms to thrive and contribute to economic growth overall privatization allows firms to achieve improved efficiency while driving the development of the financial sector

inflation uncertainty and real economic activity an alternative approach a bstracct increased uncertainty about inflation is shown to encourage inflation hedging which in turn reduces the macroeconomic costs of that uncertainty portfolio theory and empirical evidence support the contention that only the portion of inflation volatility that cannot be hedged has real economic effects additional empinrcal results suggest that i increased inflation volatility in the early seventies was eventually followed by portfolio reallocations that allowed for greatly improved inflation hedging and ii the deletenrous effect of inflation uncertainty on real economic activity shown in previouis studies is significantly smaller after 1975