finance inflation and employment a post keynesian kaleckian analysis the purpose of this paper is to contribute to the post keynesian kaleckian macroeconomic literature we develop a macroeconomic model that explicitly integrates the role of borrowing and cash payment commitments on outstanding debt interest plus principal repayment into the consumption and investment expenditures as well as into the inflation generating process we explore the way that finance influences the distribution effects of inflation in the demand side of a money credit using economy we suggest a new phillips curve that encapsulates the impact of financial commitments on wage and profit claims we argue that high debt and cash payment commitments are likely to be associated with a positive demand side effect of inflation on the rate of employment and that they might be conducive to a negative supply side effect of employment on the inflation rate the author 2011 published by oxford university press on behalf of the cambridge political economy society all rights reserved

do non socially responsible companies achieve legitimacy through socially responsible actions the mediating effect of innovation this study investigates the effects on organization s financial performances of first the extent to which the organizations are involved in controversial business activities and second their level of social performance these companies can be considered non socially responsible given the harmful nature of the activities they are involved in managers of these companies may still have incentives to pursue socially responsible actions if they believe that engaging on those actions will help them to achieve legitimacy and improve investors perception about them we develop a comprehensive methodology to investigate these corporate social performance csp related effects in a complex but specific setting to this end we analyze a sample of 202 us firms for the period 2005 2008 using a novel method in this area partial least squares our results indicate that contrary to the general findings in prior literature companies involved in controversial business activities which engage in csp do not directly reduce the negative perception that stakeholders have about them instead we found evidence of a positive mediation effect of csp on financial market based performance through innovation

the changing time series properties of earnings cash flows and accruals has financial reporting become more conservative abstract this paper documents changes in the patterns of earnings cash flows and accruals over the last four decades in the absence of a generally accepted definition of conservatism a number of measures of reporting conservatism are identified and examined these measures rely on the accumulation of nonoperating accruals the timeliness of earnings with respect to bad and good news characteristics of the earnings distribution and the market to book ratio the patterns are consistent with an increase in conservative financial reporting over time the findings have implications for accounting standard setting regulation of financial information and financial statement analysis

routes of money endogeneity a heuristic comparison the paper sets up an analytical framework that is based on simplified balance sheets of the banking the non banking private and the government sectors in order to identify four primary routes through which money can be generated endogenously and to discuss their characteristics these routes approximate if not precisely correspond to the post keynesian accommodationist and structuralist views the new keynesian credit view bank lending channel and a hybrid one respectively copyright the author 2010 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

changes in the probability of bankruptcy and equity value abstract work in finance suggests that changes in the probability of bankruptcy likely affect firm value by affecting perceptions of the cost of transacting with the firm in this paper accounting information from the balance sheet as well as the income statement is used in conjunction with ohlson s 1980 bankruptcy prediction model to calculate unexpected changes in the probability of bankruptcy for a sample of firms with a large estimated probability of bankruptcy sometime during the ten year study period unexpected changes in the probability of bankruptcy are useful in explaining security returns even after controlling for unexpected earnings

an egalitarian system breeds generosity the impact of redistribution procedures on pro social behavior in a meritocratic system people are compensated on the basis of their individual ability whereas in an egalitarian system people are equally compensated essentially in the latter system high performers are taxed and subsidize underperformers would differences in income redistribution procedures affect people s pro social behavior in experiments we found that people are more generous toward strangers in an egalitarian treatment than in a meritocratic treatment interestingly being taxed does not reduce the generosity of high performers whereas being subsidized significantly increases the generosity of low performers jel c91 d63 d64 i introduction numerous experimental studies have established that humans exhibit other regarding behavior camerer 2003 that is humans care not only about their own material payoffs but also about fairness reciprocity and other people s well being some explanations for this other regarding behavior have been offered in the literature becker 1974 and andreoni 1989 assert that people are altruistic becker focuses on the notion of pure altruism and argues that caring for others is inherent in human nature andreoni focuses on the notion of impure altruism or warm glow and argues that a person is altruistic because he she receives some private benefit from the altruistic act itself rabin 1993 and levine 1998 point out the importance of the reciprocity based motive where a person s behavior toward another person is driven by the expected intention of the other person fehr and schmidt 1999 and bolton and ockenfels 2000 on the other hand argue that other regarding behavior is driven primarily by the final distribution of payoffs among people in the reference group all these studies share one common thread they focus on factors directly related to allocation decisions such as the intentions behind those decisions the consequences of those decisions on the allocators and the recipients and the expectation of how the recipients will respond to those decisions but the studies are silent on a factor seemingly unrelated to but that could potentially influence allocation decisions namely the procedure by which a money endowment or income is redistributed among allocators in reality this procedure is determined by the prevailing social system governing the way individual effort is rewarded it also differs greatly across societies in this paper we study how this endowment redistribution procedure shapes people s pro social behavior consider two distinct social environments inhabited by people of different abilities the first is characterized by a meritocratic system in which people are compensated on the basis of their individual ability and performance the second is characterized by an egalitarian system in which everybody is compensated equally regardless of his her individual ability the former resembles a pure capitalist system with no taxation and the latter acts like a socialist system with an egalitarian income redistribution essentially in the latter the low performers are subsidized whereas the high performers are taxed a natural question that emerges is whether people s pro social behavior will differ between these two social environments we postulate two factors associated with the endowment redistribution procedure that could potentially influence this pro social behavior the first is the working of serial reciprocity which encourages an individual who benefits from a kind act rendered by somebody to forward the received kind act to a third party in an egalitarian system underperformers are treated nicely by the system which could motivate them to reciprocate by treating other people nicely as well thus being treated nicely may inculcate a pay it forward spirit this notion of serial reciprocity differs from the more common form of reciprocity namely direct reciprocity which refers to recipients of the kind act returning the deed by behaving nicely back toward the person who treated them nicely

changes in the value relevance of earnings and book values over the past forty years this paper investigates systematic changes in the value relevance of earnings and book values over time we report three primary findings first contrary to claims in the professional literature the combined value relevance of earnings and book values has not declined over the past forty years and in fact appears to have increased slightly second while the incremental value relevance of bottom line earnings has declined it has been replaced by increasing value relevance of book values finally much of the shift in value relevance fiom earnings to book values can be explained by the increasing frequency and magnitude of one time items the increasing frequency of negative earnings and changes in average firm size and intangible intensity across time

100 percent reserve banking a critical review of green perspectives abstract 100 percent reserve banking c perb is an enduring proposal for monetary reform that has been taken up by some ecological economists this paper identifies three groups of green arguments in favor of c perb and offers some criticism first the proposal could serve to constrain new investments by the availability of savings thereby checking economic growth however this would strongly increase interest rate volatility second it could potentially elevate environmental considerations in decisions about resource allocation by increasing the role of the democratic state as an economic actor this line of argument faces problems that require further detailed exploration and historical perspective third a transition to c perb would allow debt levels to be drastically cut this is technically possible but politically a tall order whether the existing system of debt based bank money generates a significant growth imperative is unclear and the importance of other driving forces behind perennial economic growth in modern societies which c perb does not address remains an issue of contention in general the adoption of c perb presupposes a tremendous reconfiguration of power relations between states and finance capital

the impact of cash flow volatility on discretionary investment and the costs of debt and equity financing abstract we show that higher cash flow volatility is associated with lower average levels of investment in capital expenditures r d and advertising this association suggests that firms do not use external capital markets to fully cover cash flow shortfalls but rather permanently forgo investment cash flow volatility also is associated with higher costs of accessing external capital moreover these higher costs as measured by some proxies imply a greater sensitivity of investment to cash flow volatility thus cash flow volatility not only increases the likelihood that a firm will need to access capital markets it also increases the costs of doing so

conservatism and debt abstract despite the unquestionable influence of conservatism disagreement remains about what economic demands lead to financial reporting conservatism research examining lenders demands for reporting conservatism has been questioned for ignoring conservative contract modifications we document that these modifications exist but are not ubiquitous we find contract modifications are more likely when agency costs are higher and litigation tax and equity demands for conservatism are lower however we find a positive association between unexplained reporting conservatism and contract modifications suggesting contractual modifications alone do not fulfill lenders demands for conservatism

how does residual income affect investment the role of prior performance measures this paper examines whether you get what you pay for in firms that implement residual income ri based compensation specifically this paper explores differences in investment patterns of firms that implement ri based compensation plans conditional on whether the firms switched from earnings or return on investment roi based compensation i find that the pattern of investment for firms switching to ri from earnings based compensation is opposite to that of firms switching from roi based compensation changes in investment within each individual subgroup yield weaker mixed results in addition this paper documents that delivered ri increases in firms that implement ri my paper contributes to the literature on the investment effects of ri by examining the relevance of a set of arguments that have been made in management accounting textbooks since 1965 these arguments are still found in current textbooks and are commonly taught to students in graduate level managerial accounting classes the arguments help us to examine a natural experiment in which we can better specify the conditions under which ri use is expected to be associated with changes in investment

conditional earnings conservatism and corporate refocusing activities we extend standard models of conditional earnings conservatism and adaptation value to the context of the corporate refocusing activities of uk listed companies this analysis is interesting because refocusing activities are 1 commonly anticipated by significant negative returns in the financial year s before the refocusing event 2 typically associated with large material charges and 3 likely to be part of a strategic plan with the internal decision preceding the formal public announcement we complement burgstahler and dichev 1997 by showing how their nonlinear relation between share prices and earnings changes around refocusing events as adaptation options are exercised because refocusing events also involve large realized losses and major changes to firms strategic plans we expect to see systematic changes in the timing relations between stock returns and reported earnings to capture this we show how the coefficients of basu s 1997 model of conditional conservatism change around refocusing events

churn versus diversion in antitrust an illustrative model an important question in horizontal merger analysis is what share of a firm s lost output from a unilateral price increase will divert to its merger partner this diversion ratio is often estimated using data on customer switching from a firm to its rivals churn we use a tractable oligopoly model to investigate the potential biases of such estimates depending on what caused the churn shifts in quality or marginal cost of the firm or of a rival or demand side shifts due to changed circumstances or learning about product attributes with demand side shifts churn can be greater between more distant competitors

keynesian macroeconomics without the lm curve the is lm model has been a central tool of macroeconomic teaching and practice for over half a century legions of earlier writers have offered criticisms of the model that have become familiar with the passage of time the model lacks microeconomic foundations assumes price stickiness has no role for expectations and simplifies the economy s complexities to a handful of crude aggregate relationships but countless teachers students and policymakers have found the model to be a powerful framework for understanding macroeconomic fluctuations recent developments have created new difficulties for the is lm model although the new difficulties are less profound than the traditional ones they are more likely to be fatal like all models the is lm model is not universal its assumptions and simplifications make it better suited to analyzing some issues than others and to describing some economic environments than others but neither the issues nor the environment of macroeconomic fluctuations are fixed in terms of issues one major change is that the debates between keynesians and monetarists about the relative effectiveness of monetary and fiscal policy that were central to macroeconomics in the 1960s and 1970s now play only a modest role in the analysis of short run fluctuations in terms of the environment one important change is that most central banks including the u s federal reserve now pay little attention to monetary aggregates in conducting policy but the is lm model is particularly well suited to presenting the debates between keynesians and monetarists and one of its basic assumptions is that the central bank targets the money supply in short recent developments work to the disadvantage of is lm this observation suggests that it is time to revisit the question of whether is lm is the best

a note on romer s openness inflation relation the responsiveness of as and ad to economic openness and monetary policy temple 2002 empirically challenges romer s 1993 negative openness inflation relation on empirical grounds this article links economic openness to the slopes of aggregate supply as and aggregate demand ad to explain why the openness inflation relation can be ambiguous starting with a widely used assumption initiated by romer 1993 that more open economies face greater output inflation tradeoffs we demonstrate that greater output inflation tradeoffs in more open economies reflected in the steeper as induce policymakers to adopt more aggressive optimal monetary policy reflected in the flatter ad empirical results from 15 developed countries data support our theoretical explanation on the recent empirical failure in finding the negative openness inflation relation

the modern view of macroeconomics some critical reflections david romer has proposed a new basic macroeconomic framework the is mp ia model its proponents claim that it represents the modern view of macroeconomics we show that the new framework remains closely attached to the neoclassical synthesis and in addition does not take account of i the empirical evidence on the output inflation trade off ii the evidence on the interdependence of aggregate demand and supply iii the institutional limits of monetary policy and iv the implications for macroeconomic policy of i ii and iii once these aspects have been incorporated short run stabilisation policy is not neutral in the long run the notion of a natural rate of interest becomes untenable and aggregate demand turns into the crucial exogenous variable copyright 2005 oxford university press

the market valuation implications of net periodic pension cost components abstract this paper examines whether market participants implicitly assign different coefficients to pension cost components when determining security prices the major findings are 1 the pension cost components coefficients generally differ from one another as predicted the transition asset amortization coefficient is lower than other pension coefficients and is insignificantly different from zero 2 consistent with the market viewing pension related income streams as less risky the pension coefficients are generally larger than the nonpension coefficients additional specification tests permitting nonpension coefficients to vary with risk tax payer status and industry membership generally support the basic findings although the significance levels are generally higher

myopia discretion and commitment in a two period as ad model a large body of pedagogical literature has recently emerged to place the new keynesian framework for analyzing business cycle fluctuations and the conduct of monetary policy into undergraduate economics curricula this article develops the graphical apparatus for the analysis of optimal monetary policy in the context of a two period model under alternative assumptions about the formation of inflationary expectations it demonstrates that differences in assumptions about the formation of inflationary expectations translate into quite different conclusions regarding the optimal conduct of monetary policy

estimated general equilibrium models for the evaluation of monetary policy in the us and europe a persistent criticism of general equilibrium models of monetary policy which incorporate nominal inertia in the form of the new keynesian phillips curve nkpc is that they fail to capture the extent of inflation inertia in the data in this paper we derive a general equilibrium model based on optimising behaviour but which also implies a data consistent nkpc specifically our model accounts for nominal inertia in both price and wage setting as well for habits in consumption using us and european data from 1970 to 1998 our parameter estimates reveal that i there is relatively more inertia in price setting in europe ii wage contracts last longer in the us iii the extent of backward looking behaviour in price and wage setting is statistically significant but small in both the us and europe and iv significant habits effects are present in european consumption finally we simulate the effects of monetary policy and find that while the magnitude of the impact of monetary policy on the endogenous variables in our estimated models are similar to other econometric studies the dynamic paths for variables display less inertia than is typically found in studies which use output gaps to proxy changes in marginal costs

what does the bundesbank target abstract although its primary ultimate objective is price stability the bundesbank has drawn a distinction between its money focused strategy and the inflation targeting approach recently adopted by a number of central banks we show that holding constant the current forecast of inflation german monetary policy responds very little to changes in forecasted money growth we conclude that the bundesbank is much better described as an inflation targeter than as a money targeter an additional contribution of the paper is to apply the structural var methods of b bernanke and i mihov measuring monetary policy working paper no 5145 national bureau of economic research cambridge ma june 1995 to determine the optimal indicator of german monetary policy we find that the lombard rate has historically been a good policy indicator although the use of the call rate as an indicator cannot be statistically rejected

the information content of losses abstract this study hypothesizes that because shareholders have a liquidation option losses are not expected to perpetuate they are thus less informative than profits about the firm s future prospects the results are consistent with the hypothesis they also show that the documented increase in the earnings response coefficent as the cumulation period increases appears to be due exclusively to the effect of losses the liquidation option effect extends to profitable cases where earnings are low enough to make the option attractive alternating explanations for the low informativeness of losses such as mean reversal of earnings are not supported by the tests

how has the financial crisis affected earnings management a european study the article aims to investigate whether and how in the european union eu the burst of the 2008 financial crisis affected misrepresentation of financial information due to earnings management by analysing a sample of 11 844 firm year observations listed in the eu over the period 2006 2012 an event study methodology allows us to calculate and compare country by country abnormal accruals over the estimation period and over the event period our findings validate our research hypothesis and suggest a decrease of misrepresentation in the large majority of the european countries after the burst of the financial crisis the results take part in the debate in the accounting literature about the change of earnings management over a financial crisis and have several implications for standard setters and regulators that could learn how the common incentives of entities to attract potential investors during a crisis could lead them to provide a high quality financial reporting

reassessing discretionary fiscal policy in 1992 president bush proposed legislation intended to speed up the recovery from the 1990 91 recession congress rejected this proposal for countercyclical fiscal policy stimulus in early 1993 president clinton proposed his own stimulus package but congress rejected this proposal too many reasons were given for deciding against these two discretionary fiscal policy proposals but perhaps the most common one was the large federal budget deficit in the early 1990s with the rapid disappearance of budget deficits in recent years this reason to vote against a discretionary fiscal stimulus is unlikely to be mentioned in the next economic cycle discretionary countercyclical fiscal policy again appears to be a politically feasible option but should america use it after so many years of disuse much has happened in macroeconomics since the 1960s and 1970s when discretionary countercyclical fiscal policy was last considered a serious option in the united states first monetary policy making has changed substantially over the last two decades the federal reserve s interest rate decisions have become more explicit more systematic and more reactive to changes in both inflation and output the fed has placed a greater emphasis on keeping inflation low the experience with this new policy has been very favorable inflation has been low since the early 1980s and the real economy has been more stable the 1980s and 1990s saw two lengthy expansions separated by a relatively short and mild recession in terms of the tradeoff between output variability and inflation

a model of accrual measurement with implications for the evolution of the book to market ratio this paper constructs a model of accrual measurement and tests its implications for the evolution of the book to market ratio the model captures the intuition that book value is untimely or smoothed relative to market value so that movements in market value have relatively high variance and low predictability compared with movements in book value empirical tests of the model use lagged market value changes to forecast the mean reversion of the book to market ratio this paper complements recent research investigating the role of book to market ratios in security analysis accounting theorists e g edwards and bell 1961 and feltham and ohlson 1995 have long recognized the critical role of book to market ratios as predictors of abnormal earnings in earnings based valuation models tests of such valuation models e g ou and penman 1993 confront the practical problem of determining the horizon beyond which abnormal earnings are expected to be zero the model in this paper implies that this horizon is determined by the remaining useful life of assets and that the expected path of abnormal earnings over this horizon reflects the pattern of expiration of the useful lives of assets in place

monetary policy in the uk the authors argue that the institutional dimension of the bank of england monetary policy and the role the uk hm treasury assumes in this framework are both firmly based on the new consensus in macroeconomics ncm this is also the theoretical framework upon which the inflation targeting element of monetary policy is firmly based this paper discusses these aspects of uk monetary policy and then assesses the policy that has been pursued since 1997 with some reference made to the period between 1992 and 1997 when a version of the framework was introduced the strategy has been successful in terms of keeping uk inflation rates within the targets set by hm treasury however a number of problematic issues are highlighted and discussed

financial intermediation and macroeconomic analysis a macroeconomic framework in which fi nancial intermediation matters for the allocation of resources allocation of resources in this paper i fi rst discuss why neither standard macroeconomic models that in this paper i fi rst discuss why neither standard macroeconomic models that abstract from fi nancial intermediation nor traditional models of the bank lending abstract from fi nancial intermediation nor traditional models of the bank lending channel are adequate as a basis for understanding the recent crisis i argue that channel are adequate as a basis for understanding the recent crisis i argue that instead we need models in which intermediation plays a crucial role but in which instead we need models in which intermediation plays a crucial role but in which intermediation is modeled in a way that better conforms to current institutional intermediation is modeled in a way that better conforms to current institutional realities in particular we need models that recognize that a market based fi nan realities in particular we need models that recognize that a market based fi nan cial system one in which intermediaries fund themselves by selling securities in cial system one in which intermediaries fund themselves by selling securities in competitive markets rather than collecting deposits subject to reserve require competitive markets rather than collecting deposits subject to reserve require ments is not the same as a frictionless system ments is not the same as a frictionless system i then sketch the basic elements of an approach that allows fi nancial inter i then sketch the basic elements of an approach that allows fi nancial inter mediation and credit frictions to be integrated into macroeconomic analysis in a mediation and credit frictions to be integrated into macroeconomic analysis in a straightforward way i show how the model can be used to analyze the macroeco straightforward way i show how the model can be used to analyze the macroeco nomic consequences of the recent fi nancial crisis and conclude with a discussion of nomic consequences of the recent fi nancial crisis and conclude with a discussion of some implications of the model for the conduct of monetary policy some implications of the model for the conduct of monetary policy

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

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

real balance effects and monetary policy i introduction modern literature on monetary policy rules employs new keynesian optimizing models that do not explicitly include monetary aggregates see e g rotemberg and woodford 1997 clarida et al 1999 taylor 1999 in these models the demand for output derives from the log linearization of the standard euler equation characterizing household s saving decisions the real money stock does not enter the is relation and therefore monetary policy affects output and inflation only through its effect on the real interest rate when the nominal interest rate is the policy instrument it is not necessary to specify a money market equilibrium condition see romer 2000 the practice of neglecting monetary aggregates in monetary policy analysis has recently been questioned by meltzer 1999 mccallum 2001 and nelson 2002 2003 in particular mccallum 2001 points out that although no explicit term involving money appears in the standard new keynesian setup long run inflation can still be pinned down by the economy steady state nominal money growth rate moreover mccallum 2000 2001 andres et al 2001 kremer et al 2003 woodford 2003 ireland 2004a and collard and dellas 2005 analyze the case in which the resources used by consumers in conducting transactions are modeled by a nonseparable function of consumption and real money balances meltzer 1999 2001 argues that changes in real monetary base generate effects on real aggregate demand not summarized by the real interest rate on short term securities nelson 2003 emphasizes the role of money in the transmission mechanism both as a proxy for a whole spectrum of rates of return and as an indicator variable which contains information about the state of the economy the main aim of the present article is to provide additional microfoundations for an explicit role for money in the current macroeconomic debate in particular i derive a real balance effect that explicitly enters the is relation within an optimizing general equilibrium framework of the new keynesian type according to de scitovszky 1941 haberler 1946 pigou 1943 and patinkin 1965 a change in real money balances has an impact on the real financial wealth of consumers and therefore affects consumption and output notably this effect is not considered in traditional models there is in fact empirical evidence showing that real monetary base growth is a significant determinant of consumption and output gap in both the united states and in the united kingdom see chari et al 1995 meltzer 1999 nelson 2002 the present article extends the dynamic stochastic new keynesian setup with money in the utility function by introducing overlapping generations as modeled by yaari 1965 and blanchard 1985 there are good reasons to base the demand side of the economy on a discrete time stochastic monetary version of the yaari blanchard model first this kind of extension allows one to maintain the main characteristics of the so called new neoclassical synthesis that is forward looking behavior of optimizing agents and incomplete nominal adjustment of prices featured in new keynesian theories goodfriend and king 1997 second the derivation of the real balance effect does not require nonseparability in the utility function thus the implications are analytically more tractable 1 third my framework is more general because it includes the immortal representative agent setup as a particular case my analysis attempts to examine whether the presence of an explicit real balance effect in the is relation helps evaluate the role for money in designing monetary policy rules i focus on basic issues concerning the design of monetary policy rules specifically i investigate whether it is necessary for monetary policy to overreact to inflation by raising the nominal interest rate by more than the observed increase in inflation to rule out equilibrium multiplicity

the relevance of the value relevance literature for financial accounting standard setting another view this paper explains that value relevance research assesses how well accounting amounts reflect information used by equity investors and provides insights into questions of interest to standard setters a primary focus of financial statements is equity investment other uses of financial statement information such as contracting do not diminish the importance of value relevance research value relevance questions can be addressed using extant valuation models value relevance studies address econometric issues that otherwise could limit inferences and can accommodate and be used to study the implications of accounting conservatism r 2001 elsevier science b v all rights reserved jel classification m41 m44 g12

exploring the role delaware plays as a domestic tax haven abstract we examine whether delaware is a domestic tax haven we find that taxes play an economically important role in determining whether u s firms locate subsidiaries in delaware and that a delaware based state tax avoidance strategy lowers state effective tax rates by between 0 7 and 1 1 percentage points on average the tax savings represent a 15 24 decrease in the state income tax burden and translate to an increase in net income of 1 04 1 47 however we find that the tax benefits of delaware tax strategies are diminishing over time in response to initiatives by state governments to limit multistate tax avoidance

teaching modern macroeconomics at the principles level ideas taught at the macroeconomics principles level should satisfy two goals first they should be simple enough to be both understandable and memorable for the beginning student second they should be consistent both with the modem economy and with the macroeconomic models of this economy that are used in practice for policy evaluation there is no necessary conflict between these two goals the greater the consistency between the ideas taught in the classroom and the models used in practice the easier the ideas are to understand and the worthier they are of being remembered it would be an exaggeration to say that a consensus now exists in advanced research about how macroeconomics should evolve in the future debates continue for example about the usefulness of models with representative agents or what it means to have a fully articulated model of money nevertheless at the practical level a common view of macroeconomics is now pervasive in policyresearch projects at universities and central banks around the world this view evolved gradually since the rational expectations revolution of the 1970 s and has solidified during the 1990 s it differs from past views and it explains the growth and fluctuations of the modern economy it can thus be said to represent a modem view of macroeconomics 1 the purpose of this paper is to show how this modem macroeconomics can be taught at the principles level i focus on macroeconomic concepts including economic growth and fluctuations and their graphical representation rather than on techniques of delivery whether active learning experiments or the use of new media 2 the teaching ideas are similar to those used by david romer 2000 and taylor 1998 but the purpose of this paper is to show how closely they represent modern macroeconomics

an alternative explanation of the price puzzle abstract this paper proposes an explanation for the frequent appearance of a price puzzle in vars designed for monetary policy analysis it assumes that the data are generated by a model in which output and output gap are not equivalent while an econometrician follows the common practice of including only output in the var the omission of the output gap is shown to spuriously produce a price puzzle and several other incorrect conclusions in a class of commonly used models this can happen even if the model admits a triangular identification and if the forecasts produced by the misspecified var are optimal when the model is tested on us data all predictions are supported a commodity price index is not needed to solve the puzzle

the characteristics of a monetary economy a keynes schumpeter approach mainstream monetary theory considers money only as an instrument meant to facilitate trading without having any effect on income or on the evolution of the economic system the aim of this paper is to elaborate a monetary theory capable of supporting the thesis of money non neutrality based on the arguments developed by keynes and schumpeter the synthesis of the theories of these two great economists will be formulated starting from the two points which are common in the views of keynes and schumpeter first in contrast with mainstream theory keynes and schumpeter state that the diffusion of a fiat money induces a radical modification into the way in which the economic system works second when keynes and schumpeter describe the reasons why money and financial aggregates are not neutral they highlight the fundamental role of the credit market and of banks in contrast with the mainstream theory they do not consider the credit market as the mirror image of the goods market

estimates of the effectiveness of monetary policy this paper examines various interest rate rules as well as policies derived by solving optimal control problems for their ability to dampen economic fluctuations caused by random shocks a tax rate rule is also considered a multicountry econometric model is used for the experiments the results differ sharply from those obtained using recent models in which the coeffi cient on inflation in the nominal interest rate rule must be greater than one in order for the economy to be stable

an empirical investigation of the role of indenture provisions in determining bond ratings abstract this paper documents the occurrence of indenture provisions of newly issued bonds and the relevance of these provisions to a bond s rating a chronicle of the various combinations of restrictive covenants reveals that four covenant combinations account for over 90 of the issues the evidence also suggests that convertibility of an issue vitiates stockholder bondholder conflict because these issues have few if any restrictive covenants also the indenture provisions of low rated subordinated issues appear to reflect a concern about the underinvestment problem while the opposite holds for high rated nonsubordinated issues the addition of indenture provisions to a bond rating model is shown to create a model superior to previous rating models this finding highlights the complex nature of the corporate financial contracting process consistent with past evidence moody s ratings are predicted more accurately than s p s ratings and split rated issues are predicted less accurately than commonly rated issues

liquidity preference in a portfolio framework and the monetary theory of kahn this paper examines the relation between variations in the propensity towards liquidity preference price adjustment and shifts in portfolio allocation by expanding kahn s idea of marginal equilibrium under strong uncertainty in financial markets and contributes to recent post keynesian attempts to develop a liquidity preference theory of asset prices by providing an analysis of the price adjustment mechanism the notion of the own rate of money interest is utilised to develop a multi asset liquidity preference framework which is consistent with uneven variations of liquidity premia across assets in response to changes in the degree of strong uncertainty that is specific to different investors with variable allocation of assets in their portfolios more specifically in the context of this portfolio framework it is established that an increase in the state of strong uncertainty state of bearishness makes less liquid assets further less inconvenient than more liquid assets in periods characterised by greater strong uncertainty equilibrium is restored through a greater demand for more liquid assets including money relative to the demand for less liquid assets and therefore through a higher own rate of money interest for less liquid assets than warranted which shows the ineffectiveness of standard monetary policy

acquisition premiums when investment banks invest their own money in the deals they advise and when they do not evidence from acquisitions of assets in the uk abstract this paper shows that investment banks that advise acquirers of assets negotiate favourable terms when they invest their own money in the deal but lead their clients to overpay when they do not have financial incentives acquirers pay the smallest premiums in divisional mbos when advised by the investment bank that finances the deal and the largest premiums in interfirm asset sales when advised by an investment bank remunerated contingent on deal completion premiums are in between the two extremes when acquirers do not use advisors these results are attributed to investment bank incentives which exacerbate the information asymmetry between buyers and sellers of assets

discretionary behavior with respect to allowances for loan losses and the behavior of security prices abstract the study examines the capital market pricing of discretionary and nondiscretionary components of a major accrual in the banking industry the allowance for loan losses the analysis employs a two stage approach in which the allowance account is first decomposed into estimates of its nondiscretionary and discretionary components the second stage evaluates the market s valuation of the estimates of the components evidence suggests that the capital market perceives the allowance to be comprised of two components a nondiscretionary component which is negatively priced and a discretionary component whose incremental pricing coefficient is positive

comparative evaluation of post keynesian interest rate rules income distribution and firms debts for macroeconomic performance this article investigates the macroeconomic effects of firms debts and income distribution on economic growth and inflation under three different post keynesian interest rate rules the kansas city rule the smithin rule and the pasinetti rule by setting up a dynamic post keynesian model after reviewing debates on the post keynesian interest rate policies this article evaluates the relative merits of the three rules in their relationship with economic growth regimes and inflation dynamics accordingly this article explicitly shows that i a policy rule works effectively under some economic growth and inflation patterns but not necessarily under other patterns ii a policy rule contributing to high economic growth may not always be compatible with stabilisation of economic growth and iii the macroeconomic effects of debt and income distribution on economic growth and inflation are closely related to the choice of interest rate rule

a model of market power in customer markets we develop a model for studying dynamic competition in environments with frictions that lead to partial lock in of customers to products the dynamic aspects associated with customer retention and acquisition introduce pricing incentives that do not exist in more traditional static product markets the proposed model while highly stylized maintains certain symmetry properties that allow us to obtain equilibrium existence and uniqueness we then study the comparative statics of the model and derive a closed form relationship between average equilibrium markups and the herfindahl index we illustrate how the model can be used by analyzing mergers in such a dynamic environment

does the bonding effect matter in a more integrated capital market world abstract this paper examines the bonding effect of cross listing before and after the stock market liberalization reforms in china consistent with the bonding hypothesis we find that chinese firms with foreign listings attain higher valuations than firms without foreign listings we also find that they manage earnings less than comparable purely domestic listed firms and have more informative stock prices further investigation indicates that the divergence in earnings quality between cross listed and non cross listed firms shrinks dramatically after the chinese stock market liberalization reforms in 2001 and 2002 overall the results suggest that the bonding effect is mitigated in an increasingly integrated capital market world

measuring regional effects of monetary policy in canada this article measures monetary policy shocks and examines whether the effects of such shocks have differential regional effects in canada we identify three possible sources of regional effects differences in the importance of interest sensitive industries differences in the contribution of exports to output and differences in the proportion of small relative to large firms using the overnight interest rate as the instrument of monetary policy we present impulse responses of industry output from a recursive vector autoregression which incorporates a cointegrating relation the results show that manufacturing and primary industries are the most interest sensitive we conduct impulse responses of provincial employment from a monetary contraction the results show that newfoundland and prince edward island pei primary industry based provinces are strongly and adversely affected by a monetary contraction manitoba saskatchewan and alberta also primary based are also affected ontario which is man

the nature of the adas model based on the islm model the aggregate demand and supply model adas is interpreted as a synthesis of the keynesian and neoclassical models it uses the islm model without explaining its nature to derive aggregate demand ad it is combined with an aggregate supply as curve to explain price inflation and output dynamics this paper argues that neither the ad nor as curve is conceptually the same as its microeconomic counterpart and adas is not a synthesis in fact adasimplies that discretionary policy is necessary and that price changes do not perform their traditional negative feedback function

what is new keynesian economics this research was supported by the national science foundation i am grateful to george williams for help with the data and to steven allen laurence ball olivier j blanchard timothy bresnahan charles calomiris dennis carlton robert chirinko russell cooper stanley fischer herschel grossman r glenn hubbard david laidler john leahy assar lindbeck n gregory mankiw david romer julio rotemberg dennis snower john taylor andrew weiss and two anonymous referees for comments on one or more earlier drafts i am also indebted to michael parkin and edmund s phelps for helping to establish the etymology of the phrase new keynesian

making monetary policy objectives and rules what is it that monetary policy makers do and how do they do it the simple answer is that a central banker moves interest rates in order to maintain steady real growth and stable prices in this essay i examine the issues that arise in framing the problem faced by monetary policy makers i begin with a discussion of how over the past decade or so central banks have been made more independent and more accountable the result has been the virtual elimination of the inflation bias problem that is caused by political interference in the monetary policy process and better overall macroeconomic performance the essay proceeds with an example of a formal version of the policymakers problem describing their objectives and the information they need to formulate a policy rule i conclude with a discussion of a simple versus complex policy rules the impact of uncertainty on policy making and how central bankers use formal modelling in making their day to day decisions copyright 2000 by oxford university press

relative valuation roles of equity book value and net income as a function of financial health abstract this study tests predictions that pricing multiples on and incremental explanatory power of equity book value net income increase decrease as financial health decreases tests using a sample of 396 bankrupt firms and tests using a larger pooled sample both yield inferences consistent with predictions findings are robust to inclusion of controls for industry size return on equity and volatility of equity returns equity book value and net income multiples and incremental explanatory power vary predictably across three illustrative industries selected based on the likely extent of unrecognized intangible assets

monetary and fiscal policy in the great moderation and the great recession in this paper we argue for a new approach to monetary and fiscal policy during the great moderation the inflation targeting regime worked well central banks used the interest rate to stabilize inflation and subject to inflation being controlled stabilized the level of demand fiscal policy exerted discipline over the public sector deficits thereby indirectly managing the level of public debt such fiscal housekeeping worked well because the monetary authorities were stabilizing the economy but once private sector deleveraging led to the great recession and interest rates hit their zero bound the outcome could no longer be managed by monetary policy recovery depended on the automatic stabilizers output and tax revenues have fallen public debt has been created and assets have been created which a deleveraging private sector wishes to hold but the effect has been very gradual recovery would have been faster if fiscal policy had been responsible for the restoration of full employment in an environment which tolerated the necessary rises in public debt conversely policies of austerity designed to reduce public debt have slowed the recovery growth will not be resumed until the private sector begins to invest strongly again creating the financial assets which the private sector wishes to hold thereby enabling public debt to be retired this has not yet happened because the private sector correctly does not believe that macroeconomic policy is capable of sustaining a strong recovery

an alternative model to the open economy new consensus for the analysis of inflation targeting abstract in this paper we will discuss a demand led growth model which is constrained by economic policy in this way we will incorporate an inflation targeting regime in the sraffian supermultiplier model in order to analyze how economic policy can influence the growth rate of productive capacity we will analyze an open economy were inflation is a cost push phenomenon and the monetary authority can manage the nominal exchange rate through changes in interest rate differentials as functional income distribution will depend on the evolution of nominal wages exchange rate and interest rate we will show that inflation target system in addition of not being neutral in terms of long run growth also can lead to different outcomes in terms of functional income distribution

have financial statements lost their relevance the authors explore the concern that financial statements no longer have the same relevance to investors that they had in the past they test for value relevance by measuring the total return that could have been earned from prior knowledge of financial statement information and by examining the explanatory power of accounting information on market values and annual market adjusted returns both analyses are applied to a broad sample of exchange listed and nasdaq firms for the 1952 94 period the authors find mixed evidence on value relevance of financial statement reporting during the test period

discussion of asymmetric timeliness of earnings market to book and conservatism in financial reporting abstract roychowdhury and watts 2007 asymmetric timeliness of earnings market to book and conservatism in financial reporting journal of accounting and economics provide a thought provoking discussion of an important topic and consider a controversial role of accounting inconsistent with the valuation perspective of accounting currently adopted by standard setters the paper uses a contracts based view of accounting to explain the empirical relation between two measures of conservatism the market to book ratio and asymmetric timeliness although the predictions from their framework are consistent with the previously documented negative correlation between these measures suggesting this criticism of asymmetric timeliness may be misguided i will be surprised if their paper eliminates the controversy over these measures of conservatism

the significance of sell off profitability in explaining the market reaction to divestiture announcements abstract previous research on asset sales has emphasized the divestment motivation and the use of the proceeds from the sale as determinants of selling firm value gains in contrast this paper explores the extent to which the relevant information necessary to evaluate sell offs is embodied in the profitability of the sale i e the price received by the seller over the value in use of the divested assets where the latter is a function of past operating earnings and book value our empirical results show that sell off profitability is substantially more significant in explaining the market reaction to divestiture announcements than the previous literature has suggested we provide strong evidence of a positive relation between selling firm abnormal returns during sell off announcements and profit on the sale which remains significant after controlling for the motivation behind the sell off the use of the proceeds from the sale and the presence of agency costs of managerial discretion we conclude that sell off profitability explains a major portion of selling firm abnormal returns and is one of the most significant determinants of the market reaction to divestiture announcements

why are losses less persistent than profits curtailments vs conservatism it is well documented that losses are less persistent than profits and that stock prices anticipate the lower persistence of losses yet the underlying explanation for these results is unclear one explanation lies in the abandonment option whereby firms with losses are more likely to curtail operations e g hayn hayn c 1995 the information content of losses j accounting econom 20 2 125 153 another explanation involves timely loss recognition stemming from conservative accounting e g basu basu s 1997 the conservatism principle and the asymmetric timeliness of earnings j accounting econom 24 1 3 37 we provide direct evidence that curtailments are an important factor contributing to the lower persistence of losses an implication of our results is that popular measures of conservatism such as the measure proposed by basu also reflect curtailments this paper was accepted by suraj srinivasan accounting

can prominence matter even in an almost frictionless market consumer search on the internet is rarely random sponsored links appear higher up a webpage and consumers often click them firms also bid aggressively for these prominent positions at the top of the page but why should prominence matter when visiting an additional website is almost costless i present a model in which consumers know their valuations for the products offered in the market but do not know which retailer sells which product i show that a prominent retailer earns significantly more profit than other firms even when the cost of searching websites and comparing products is essentially zero

teaching dsge models to undergraduates abstract this paper puts forward a systematic approach to teaching simple dynamic stochastic general equilibrium dsge models to undergraduates it proceeds in the following way first the structural model of the economy which includes the households and firms problems is presented and progressively solved we then find the steady state and log linearized equations of the model next a productivity shock is simulated on the computer so as to tell a story about how the economy behaves finally the model is extended by including the government and the foreign sector we reckon instructors of macroeconomics will find this path useful in teaching their undergraduate students the basics of dsge models

gradual wage price adjustments labor market frictions and monetary policy rules abstract in this paper the role of different types of labor market frictions in the dynamics of output and inflation is investigated for this purpose the keynes goodwin model discussed in chen et al 2006 and franke et al 2006 is extended by a labor search and matching module along the lines of mortensen et al 1994 after estimating the resulting model with u s aggregate time series and comparing its dynamics with those of a var model the performance of different types of monetary policy rules for inflation and more generally for macroeconomic stability is analyzed