analysts incentives and street earnings we examine whether analysts incentives are associated with street earnings because prior research argues that analysts incentives to promote stocks increase in the extent to which the stock exhibits glamour characteristics we predict that analysts are more likely to make income increasing adjustments in determining street earnings for glamour stocks than for value stocks we find that analysts are more likely to exclude expense items from street earnings for glamour stocks than for value stocks and that excluded expense items help predict future earnings for glamour stocks but not for value stocks overall our results suggest that analysts self interest influences street earnings and this self interest leads to street earnings that are less useful in predicting future earnings for glamour stocks

towards an attention based view of the firm the central argument is that firm behavior is the result of how firms channel and distribute the attention of their decision makers what decision makers do depends on what issues and answers they focus their attention on what issues and answers they focus on depends on the specific situation and on how the firm s rules resources and relationships distribute various issues answers and decision makers into specific communications and procedures the paper develops these theoretical principles into a model of firm behavior and presents its implications for explaining firm behavior and adaptation 1997 by john wiley sons ltd

does one soros make a difference a theory of currency crises with large and small traders do large investors increase the vulnerability of a country to speculative attacks in the foreign exchange markets to address this issue we build a model of currency crises where a single large investor and a continuum of small investors independently decide whether to attack a currency based on their private information about fundamentals even abstracting from signaling the presence of the large investor does make all other traders more aggressive in their selling relative to the case in which there is no large investors small investors attach the currency when fundamentals are stronger yet the difference can be small or null depending on the relative precision of private information of the small and large investors adding signaling makes the influence of the large trader on small traders behaviour much stronger

divergent reactions to convergent strategies investor beliefs and analyst reactions during technological change an important outcome of technological change is industry convergence as a new technology spurs competition between established firms from different industries we study the reactions of securities analysts as important sources of institutional pressures for firms to the similar product market strategies undertaken by firms from different prior industries responding to industry convergence our empirical setting is the convergence between the wireline telecommunications and cable television industries in the period following the advent of voice over internet protocol technology controlling for firm financial performance and capabilities we find that analysts were consistently more positive toward the cable firms than toward the wireline telecom firms our findings further show that this divergence in reactions arises from differences in existing investor expectations and preferences concerning how firms create value stocks owned by investors with a greater preference for growth receive more positive reactions than those owned by investors with a greater preference for margins however this divergence in reactions shrinks over time as convergence unfolds and as investors shift their shareholdings in response to misalignment between their preferences and firms strategic changes reactions from analysts reflecting inertial expectations of investors may persist for a time despite changes to firms strategies thus creating challenges for some firms in responding to technological change and industry convergence while legitimating and enabling similar responses from their competitors

adoption of an imf programme and debt rescheduling an empirical analysis the existence of an empirical relationship between the adoption of an imf programme and the concession of a debt rescheduling by commercial and official creditors is tested using a bivariate probit model if countries who have arrangements with the imf are more likely than others to obtain a rescheduling of their external debt we could conclude that the adoption of an imf programme could work as a sort of signal of a country s good willingness which is thus rewarded with the debt relief the results confirm the existence of a significant effect of the adoption of an imf programme on the subsequent concession of a debt rescheduling by creditors

international and domestic constraints on political business cycles in oecd economies a comment we attempt to assess the effect of monetary policy in a panel model for 16 member countries of the organization for economic cooperation and development oecd to answer the question of whether central banks actively create political business cycles we focus on the short term interest rate as a proxy for the use of monetary instruments our results indicate that central banks do not create political business cycles this conclusion holds whether or not central banks are independent and whether or not they are constrained by the exchange rate system in force

economic growth strategies the effects of ideological partisanship on interest rates and business taxation in the united states we reformulate the partisanship thesis in light of four claims leveled against it the reformulated version ideological partisanship is based upon the theory that similar rates of economic growth may follow from the different use of policy instruments owing to their role as determinants of investment and growth interest rates business taxation rates and the redistribution of the tax burden between capital gains and earned income are examined we advance models that take into account other views of politics beside the partisan one and test for political influences the united states is characterized by very pronounced partisan differences in national economic policy with democratic administrations seeking to promote growth through a consumption driven while republican administrations promote an investment driven strategy democratic administrations also seek to shift the tax burden toward corporations and owners of capital these findings are examined in light of the comparative political economy literature we conclude that the forms and institutional foundations of left partisan policies differ among democratic capitalist countries

federal reserve independence abstract the federal reserve is always called an independent agency the term independent is rarely defined the only attempt in the literature and internal records is based on chairman martin s statement that the federal reserve is independent with the government not independent of the government martin explained several times that independence within government meant that the federal reserve helped to finance government budget because they were approved by congress and signed by the president financing budget deficits is the very opposite of the principle adopted when congress approved the federal reserve act in 1913 in fact the federal reserve has supported treasury operations many times i conclude that it is far more important to have an enforceable policy rule such as the taylor rule but any rule must have a provision that permits the rule to be set aside

political business cycles 40 years after nordhaus the aim of this article is to survey the huge literature that has emerged in the last four decades following nordhaus s rev econ stud 42 2 169 190 1975 publication on political business cycles pbcs i first propose some developments in history of thought to examine the context in which this ground breaking contribution saw the light of the day i also present a simplified version of nordhaus s model to highlight his key results i detail some early critiques of this model and the fields of investigations to which they gave birth i then focus on the institutional context and examine its influence on pbcs the actual research agenda finally i derive some paths for future research

institutional sources of boundary spanning structures the establishment of investor relations departments in the fortune 500 industrials the authors analyze the coercive and mimetic conditions leading to the establishment of investor relations departments among fortune 500 industrial firms during the 1984 1994 period the results show that antimanagement resolutions brought to a vote by social movement activists significantly contributed to the establishment of investor relations departments intense scrutiny by financial analysts also impelled firms to create such departments whereas social movement activists framed shareholder rights as a problem and compelled organizations to uphold them professional analysts subtly coerced organizations to signal their commitment to investor rights by creating boundary spanning structures that solution was transmitted through board interlocks to other organizations

capital investment as investing in organizational capabilities an empirically grounded process model this article describes a field study in which insights from the resource based view of the firm were combined with models of capital investment decision making to investigate the decision processes

analyzing the analysts career concerns and biased earnings forecasts this paper examines the career concerns of security analysts we relate long histories of their earnings forecasts to job separations we find that relatively accurate past forecasts lead to favorable career outcomes such as remaining at or moving up to a high status large prestigious brokerage house controlling for accuracy optimistic forecasts relative to the consensus increase the chances of favorable job separations job separations depend much less on accuracy for analysts who cover stocks that are underwritten by their brokerage houses such analysts are also much more likely to be rewarded for optimistic forecasts than other analysts furthermore job separations were much less sensitive to accuracy and somewhat more sensitive to optimism during the stock market mania of the late 1990s these findings suggest that the well documented analyst forecast optimism bias is likely due to incentives to promote stocks

first branch or root the congress the president and the federal reserve much of the literature on the power of elected officials and bureaucratic agencies argues from an empirical perspective that bureaus appears to exercise autonomy in this paper a theoretical model sets out the conditions under which the congress the president and one agency we use the u s federal reserve as an extended example can dictate policy outcomes the results of the paper include the congressional dominance theorem if more than 2 3 of house members and more than 2 3 of senate members agree on something they get it the theorem is obvious the proof is in the u s constitution but often forgotten in the substantive literature more realistic results are derived for situations where the preferences of members of congress are more diverse powers of the president to influence policy with and without appointments are also analyzed

unique equilibrium in a model of self fulfilling currency attacks even though self fulfilling currency attacks lead to multiple equilibria when fundamentals are common knowledge we demonstrate the uniqueness of equilibrium when speculators face a small amount of noise in their signals about the fundamentals this unique equilibrium depends not only on the fundamentals but also on financial variables such as the quantity of hot money in circulation and the costs of speculative trading in contrast to multiple equilibrium models our model allows analysis of policy proposals directed at curtailing currency attacks

shrewd crude or simply deluded comovement and the internet stock phenomenon we show that i return comovement among internet stocks during the late 1990s and early 2000 was not exceedingly high ii there was substantial consistency in the manner by which investors distinguished among internet stocks and iii high comovement is most common during periods of price erosion these results cast doubt on the view that the extraordinary appreciation of internet stocks was due to the crude classification of all such stocks as members of a hot category

testing the satisficing version of the political business cycle 1905 1984 this paper develops a test of the satisficing version of the political business cycle previous tests have focused on maximizing models of political behavior and are not sufficiently general to test for satisficing behavior using annual u s data for the period 1905 to 1984 we find evidence supporting the satisficing version of the political business cycle model but we reject the maximizing version in accordance with the satisficing hypothesis we find that increasing inflation or unemployment and decreasing monetary base growth in the third year of a presidential term are followed typically by reversals during the election year

what price accountability the lucas island model and the politics of monetary policy this paper develops a model of an electoral cycle in inflation and output based on rational inflation expectations and rational retrospective voting voters are heterogeneous and partially informed about aggregate macroeconomic variables they observe precisely how monetary policy stimulates their local economies but their observations of economic activity in other sectors are imprecise voters extract information about the incumbent policymaker s economic competence from cross sectoral spillover effects the incumbent has incentives to generate preelection monetary surprises that stimulate the local economies and generate cross sectoral spillover effects he thereby creates an impression of economic competence and furthers his reelection prospects his policy manipulations are the price of political accountability on a positive note the incumbent is more likely to survive voter scrutiny if he is more competent than the average political candidate

public sector price controls and electoral cycles public enterprise prices are important policy instruments in developing economies this is why public sector price polices constitute a key element of stabilization programmes implemented in these economies however this significance is not specific to stabilization episodes first this study questions whether an opportunistic politician can manipulate public prices to win elections it analyses the impact of such price controls on budget deficits and the repercussions of alternative financing mechanisms of these deficits on the inflation rate and voters behaviour it is shown that electoral inflation cycles are obtained under domestic debt financing whereas money financing does not permit such a manipulative policy second by focusing on data of the turkish economy for the 1987 1 2003 12 period empirical evidence for such manipulative policies is given

political business cycles in the new keynesian model i know there s the myth of the autonomous fed nixon barked a quick laugh richard nixon talking to arthur burns on october 23 1969 just after burns s nomination to the fed had been announced 1 i d like to see another lowering of interest rates i think there s room to do that i can understand people worrying about inflation but i don t think that s the big problem now george h w bush interview with new york times june 24 1992 i introduction economic conditions before elections affect election outcomes 2 rational politicians who recognize this regularity may therefore be tempted to try to influence the economy in the quarters preceding an election date to maximize their chances of being reelected the literature on political business cycles pbc has developed models that rationalize economic fluctuations induced by political cycles nordhaus 1975 presented a model of opportunistic political cycles the party in power stimulates the economy before elections to improve its reelection probability others have observed that different parties may have different preferences over inflation and output or unemployment outcomes and therefore we should observe partisan political cycles hibbs 1977 was the first to introduce the partisan cycle model in which left wing parties were assumed to have at least one of the following a higher output target a higher inflation target or a higher relative weight on minimizing output rather than inflation deviations from the targets compared with right wing parties several papers test for the existence of opportunistic or partisan cycles in the united states alesina cohen and roubini 1992 and alesina roubini and cohen 1997 find only weak evidence of an opportunistic political cycle looking at m1 growth rates grier 1989 and beck 1987 instead find support for the effect of political variables on m1 growth rates for the 1960 1980 period but not on the mean level of the federal funds rate as discussed in drazen 2000a 2000b there is basically no evidence instead that political cycles matter for macroeconomic outcomes by looking at data on unemployment and output growth grier 2008 is a recent exception and only weak evidence for inflation empirical tests of the partisan cycle model alesina roubini and cohen 1997 faust and irons 1999 find partisan differences in output growth rates but no support for partisan cycles in inflation and monetary policy tests of pbc typically assume monetary policy as the main tool that is exploited by politicians to manipulate the economy these studies usually focus on comparing the level of inflation output money growth rates or interest rates across political cycles or they add a political dummy variable to the relevant regression and test its significance this paper offers a different approach the paper aims to empirically test various political business cycle theories adopting an optimizing new keynesian model with a monetary and fiscal policy mix as the main setting the inclusion of both fiscal and monetary policy is motivated by drazen 2000b 3 the new keynesian model is a baseline setting for the analysis of monetary policy but it has not been widely used to study pbc an advantage of this paper with respect to most of the previous pbc literature lies in the use of a general equilibrium framework this is in fact necessary when testing the importance of politically motivated policy choices to effectively control for differences in the macroeconomic conditions the set of shocks or the private sector expectations that prevail when the policy decision is taken the monetary and fiscal policy rule parameters as well as the parameters that reflect the frequency of price adjustment by firms and the steady state level of inflation are allowed to depend on the observed political regime

ownership structure speculation and shareholder intervention an institution holding shares in a firm can use information about the firm both for trading speculation and for deciding whether to intervene to improve firm performance intervention increases the value of the institution s existing shareholdings but intervention only increases the institution s trading profits if it enhances the precision of the institution s information relative to that of uninformed traders thus the ability to speculate can increase or decrease institutional intervention we examine key factors that affect the intervention decision the usefulness of short swing provisions and restricted shares in encouraging institutional intervention and implications for ownership structure across different firms institutional investors hold an ever greater fraction of corporate america s equity traditionally these institutions were stock pickers who tried to beat the market through trading if a firm whose stock they held seemed headed for trouble these investors headed for the door the wall street rule more recently some of these institutions have been using the ownership rights attached to their shares to pressure firms to act in the shareholders interest some have even argued that there is a synergy between gathering information for use in trading shares speculation and intelligently pressuring firms to improve performance intervention we argue that these motives can also conflict analyzing these motives allows us to predict which firms are most likely to attract institutional intervention which in turn has crosssectional implications for firm ownership structure recent examples suggest that institutional investors with large stakes sometimes intervene and sometimes follow the wall street rule so that there is indeed a choice to be studied in the early 1990s there was a wave of activism by a variety of large institutional investors among them calpers the california public employees pension fund putnam management a mutual fund manager and j p morgan a bank holding company these institu

a new view of political accountability for economic performance most political support models imply that in evaluating economic performance voters use a standard that would provide poor predictions of the future and leave the economy vulnerable to manipulation by vote hungry politicians drawing on macroeconomic theory we develop a simple standard of evaluation which encompasses a concern not only for current economic outcomes but also for accurately assessed future consequences of current policies we find that political support for the president can be explained as well by models that assume that voters use this sophisticated standard as by models that assume voter naivete our analysis questions the wisdom of measures typically used to assess voter evaluation of economic performance in a variety of theoretical contexts the results also help to explain the absence of convincing evidence that governments exploit voter ignorance in manipulating the economy

congressional influence on u s monetary policy abstract congressional influence is generally discounted or ignored in political models of federal reserve behavior here i show that changes in the leadership of the senate banking committee are significantly correlated with monetary base growth more liberal committee leaders are associated with significantly higher base growth other factors held constant the result is shown to hold across several econometric specifications and different definitions of the congressional preference variable

dominance by birthright entry of prior radio producers and competitive ramifications in the u s television receiver industry the u s television receiver industry evolved to be an oligopoly dominated by firms that produced radios prior to tvs data on the experience of all u s radio manufacturers and on the length of survival and rate of innovation of all u s tv entrants are collected to analyze how radio experience influenced entry firm performance and the evolution of market structure in the tv industry consistent with a model of the evolution of an oligopolistic industry more experienced radio firms were more likely to enter tv manufacturing had higher innovation rates and in turn had greater market shares and longer survival suggesting that firm capabilities and the evolution of the tv industry s market structure were critically shaped by firms experience prior to entry copyright 2000 john wiley sons ltd

on the existence of a political monetary cycle this paper examines electoral influence on monetary policy as measured by ml money growth i find a significant four year electoral cycle in money growth even when controlling for the influence of interest rates income and budget deficits further the residual electoral cycle produces the income and inflation movements associated with the political business cycle when it is used in simulations of simple reduced form macro models the paper concludes by discussing the difficulties in rationalizing cyclical monetary policy with rational expectations

us presidential elections and real gdp growth 1961 2004 in this paper i show that since 1960 an electoral cycle in us output growth can both be seen by the naked eye in the raw data and confirmed by a statistical analysis that allows for rational partisan effects as well as a wide range of control variables that is controlling for multiple lags of interest rate changes inflation money growth energy prices lagged output growth government spending or its growth and temporary partisan effects the timing of elections exerts a significant influence on quarterly real gdp growth

did the fed raise interest rates before elections the literature on political business cycles focuses on elected incumbents and neglects the incentives of appointed officials we present evidence of rate hikes before elections when the chair of the us federal reserve is from a different party than the incumbent president this finding contrasts with the traditional belief that an inappropriate policy rate bias implies a more expansive pre election policy stance we also find weak evidence that rates are lowered when the chair and president are from the same party the evidence that ideological preferences of the chair matter remains even when we control for career motives

the political manipulation of macroeconomic policy conventional wisdom and some research indicate that macroeconomic policies follow cycles corresponding to political as well as economic forces using vector autoregression analysis i test three models of monetary policy determination for the united states 1953 1984 the electoral cycle model that reelection motivations on the part of presidents create a policy cycle the party differences model that policy changes reflect revolving presidential party administrations and the referendum model that changes in presidential approval create in effect a continuing referendum allowing presidents to monitor their success and change macroeconomic policies when necessary analysis shows that monetary policies as measured by the monetary base and short term interest rates respond to the election cycle and presidential approval although the effect on macroeconomic outcomes is ambiguous party differences are found in real income but are not very significant in other variables

electoral and partisan cycles between us economic performance and presidential popularity empirical voting popularity research examines parameters that relate economic performance to voting and popularity not the interaction of these parameters with movements in economic performance which is what actually influences voting and popularity this paper examines that interaction for the usa from 1953 1 1990 4 by decomposing the response of popularity to economic performance by both political party and the quarter of the electoral term averaged over the electoral term economic performance increases the popularity of democrats but decreases it for republicans whereas near the election the opposite occurs overall the results appear consitent with a mix of partisan and electoral influences so that no single approach seems fully adequate

the electoral budget cycle this article begins with a review of the now substantial literature on the thesis that polticians manipulate governmental outputs so as to favor their chances of reelection it concludes that while this electoral cycle thesis was initially overstated by its proponents it retains more plausibility than recent critics have allowed this conclusion is then demonstrated through an analysis of expenditures by the ten provincial governments in canada between 1951 and 1984

agent heterogeneity and consensual decision making on the federal open market committee the consensual aspects of decision making are essential for understanding policy made by administrative organizations that take the form of a commision or board consensual decision making reflects the degree of policy cohesion exhibited by high level officials within administrative organizations it is proposed here that this type of behavior may differ between heterogeneous agents the federal open market committee fomc of the federal reserve system serves as a salient setting for testing these propositions in a time series context the empirical results indicate that major intra institutional differences exist between board of governor bog and regional bank president rbp members of the federal open market committee fomc regarding consensual behavior in terms of policy decision making the econometric evidence clearly demonstrates that the consensual behavior of these agents are fundamentally different from one another this in turn has important implications for the study of other commission and board policy making bodies that consist of agents who are not all homogeneous

slowing monetary growth since 1984 a public choice explanation until about 1984 the u s monetary base typically grew at an accelerating rate since then that acceleration has stopped modern evidence suggests that the federal reserve responds to political pressure we present empirical evidence supporting the hypothesis that reduced monetary base growth reflects the fact that the political advantages of price inflation have been significantly reduced by the tax indexation provisions of the economic recovery tax act of 1981

an experimental investigation of moral hazard in costly investments frequently parties make sequential decisions regarding investments for which the probability of success or failure is dependent on the amount of total investment this paper reports a series of experiments involving a costly investment game that is derived from the catalytic finance model of morris and shin global games theory and applications in advances in economics and econometrics proceedings of the eighth world congress of the econometric society edited by m dewatripont l hansen and s turnovsky cambridge ma cambridge university press pp 56 114 the sequential nature of investments is such that the second investment could function as a complement to the initial investment or simply serve as a substitute to it thereby creating moral hazard the features of this game are similar to those of the ultimatum game however there are several key differences between the games that may account for the high frequency of materially self interested behavior that we observe particularly among second movers

partisan monetary policies presidential influence through the power of appointment we investigate the channels through which partisan influence from a presidential administration could affect monetary policy making influence could be a result of direct presidential pressure exerted on members of the federal open market committee fomc or it could be a result of partisan considerations in presidential appointments to the board of governors to investigate these two channels of influence we devise and apply a method for estimating parameters of monetary policy reaction functions that can vary across individual members of the fomc our results suggest that the appointments process is the primary mechanism by which partisan differences in monetary policies arise

does government ideology matter in monetary policy a panel data analysis for oecd countries this paper examines whether government ideology has influenced monetary policy in oecd countries we use quarterly data in the 1980 1 2005 4 period and exclude emu countries our taylor rule specification focuses on the interactions of a new time variant index of central bank independence with government ideology the results show that leftist governments have somewhat lower short term nominal interest rates than rightwing governments when central bank independence is low in contrast short term nominal interest rates are higher under leftist governments when central bank independence is high the effect is more pronounced when exchange rates are flexible our findings are compatible with the view that leftist governments in an attempt to deflect blame of their traditional constituencies have pushed market oriented policies by delegating monetary policy to conservative central bankers

risk attitudes in large stake gambles evidence from a game show this article estimates the degree of risk aversion of contestants appearing on vas o no vas the mexican version of deal or no deal we consider both dynamic agents who fully backward induct and myopic agents that only look forward one period further we vary the level of forecasting sophistication by the agents we find substantial evidence of risk aversion the degree of which is more modest than what is typically reported in the literature

it s not me it s you the functioning of wall street during the 2008 economic downturn public officials have blamed wall street and its complex financial products for causing the 2008 economic downturn this article addresses three popular claims saying that complex financial markets are at fault and need more regulation it argues that even in the midst of a major economic downturn the much maligned mortgage backed securities collateralized debt obligations credit default swaps and unregistered hedge funds functioned almost exactly as designed when macroeconomic conditions worsened firms and investors that were paid to assume certain risks had to assume them those that opted for safer investment vehicles with more levels of private protection faced fewer problems although many investment vehicles lost money one must differentiate between problems that manifested themselves in markets and problems with the market itself even though government policies caused many of the problems public officials always have an incentive to point the finger at wall street and to argue for more regulations when their policies negatively affect markets

conflict of interest and the credibility of underwriter analyst recommendations brokerage analysts frequently comment on and sometimes recommend companies that their firms have recently taken public we show that stocks that underwriter analysts recommend perform more poorly than buy recommendations by unaffiliated brokers prior to at the time of and subsequent to the recommendation date we conclude that the recommendations by underwriter analysts show significant evidence of bias we show also that the market does not recognize the full extent of this bias the results suggest a potential conflict of interest inherent in the different functions that investment bankers perform

presidential elections and federal reserve policy an empirical test traditional macro economic models of federal reserve fed behavior typically assume that the fed enjoys a well defined objective function based on social welfare and generally predict counter cyclical monetary policy the increasing observation of procyclical monetary policy has led many researchers to investigate new models of fed behavior several recent papers imply that procyclical fed behavior is due to a lack of political accountability friedman 7 toma 23 and shughart and tollison 21 all attribute considerable bureaucratic discretion to the fed and seek to explain monetary policy by examining typical bureaucratic objectives other papers such as pierce 19 20 weintraub 26 and kane 10 11 argue that the fed operates in an arena filled with political constraints that cause sub optimal monetary policy but these constraints are not modeled explicitly one possible political constraint on fed behavior is the incumbent president s desire for re election in the political business cycle pbc literature presidential re election opportunities are enhanced by the production of a precise set of inflation and unemployment outcomes leading up to the election thus to the extent that presidents desire cyclical macro economic outcomes there will be executive pressure on the fed to create or accommodate such outcomes the effect this pressure will have on fed policy is ultimately an empirical question but most models deal with it by assumption traditional macro modeling assumes a zero effect while the pbc models implicitly assume that a favorable election cycle is a primary goal of all economic policymakers this paper examines presidential influence on the federal reserve by testing for an election cycle in money growth the major result is the identification of a regular 16 quarter cycle in money growth corresponding with presidential elections this cyclical effect is found to be stable over time and significant under a wide range of model specifications further when the cyclical component of money growth is used to simulate a simple macro model it produces a classic political business cycle in inflation and real output growth

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

mobile capital domestic institutions and electorally induced monetary and fiscal policy the literature on global integration and national policy autonomy often ignores a central result from open economy macroeconomics capital mobility constrains monetary policy when the exchange rate is fixed and fiscal policy when the exchange rate is flexible similarly examinations of the electoral determinants of monetary and fiscal policy typically ignore international pressures altogether we develop a formal model to analyze the interaction between fiscal and monetary policymakers under various exchange rate regimes and the degrees of central bank independence we test the model using data from oecd countries we find evidence that preelectoral monetary expansions occur only when the exchange rate is flexible and central bank independence is low preelectoral fiscal expansions occur when the exchange rate is fixed we then explore the implications of our model for arguments that emphasize the partisan sources of macroeconomic policy and for the conduct of fiscal policy after economic and monetary union in europe

event studies in management research theoretical and empirical issues we examined the use of event studies in management research and found that there was inadequate attention paid to theoretical and research design issues this lack of attention may lead to false in

product demography of de novo and de alio firms in the optical disk drive industry 1983 1999 little theory and research addresses the ways organizational context affects the demography of products we examine this question here by focusing on an organization s mode of market entry specifically we explore differences between firms entering a market de novo start up and those entering de alio diversification from another market we analyze all products ever shipped in the worldwide optical disk drive odd industry 1983 1999 we find an almost paradoxical empirical pattern whereby de novo firms typically introduce products with widely agreed upon better that is universally more appealing technological characteristics yet these products generally stay on the market for a shorter time than those of de alio firms whose products generally display less appealing technological features

deficits politics and money growth the authors examine the linkage between federal deficits and money growth by allowing the fed s resp onse to any given deficit to vary systematically according to how the deficit is generated and the party affiliation of the current presid ent in equations for m1 and monetary base growth the structural def icit is consistently significant and invariant across political chang es while the cyclical component of the deficit or a direct measure of the business cycle is significant only during the tenure of democ ratic presidents copyright 1987 by oxford university press

political parties and the variable duration of business cycles a number of recent studies explore how political factors influence real economic activity with electoral models economic performance peaks near the election as in the retrospective model of nordhaus 30 electoral cycles also emerge at least in fiscal policy in the rational expectations model of rogoff and sibert 34 and rogoff 33 with partisan models economic activity differs systematically by party as in both the ideological model of hibbs 26 and the rationalexpectations model of alesina 1 economic activity surges after election of democratic presidents and recedes after election of republican presidents although recent tests of the electoral approach are supportive 21 22 24 25 the partisan approach enjoys the more compelling support 2 3 9 10 23 26 27 the electoral and partisan views are not mutually exclusive as the possibility of conflict between ideology and the desire to be reelected as the election approaches is well recognized indeed our evidence here is consistent with a combined electoralpartisan model the macroeconomic literature at large however has been slow to absorb accumulating evidence that the party affiliation of the incumbent president together with the timing of the electoral period are linked to real economic activity in this study we gauge the significance of these links for the united states and relate them to two important strands of the macroeconomic literature one strand the time series literature investigates the statistical properties of measures of real economic activity finding that these measures often exhibit nonconstant means and heteroscedastic variances in autoregressive integrated moving average arima models the conditional mean is a function of past innovations while the conditional variance is constant applications of arima and related models beginning with nelson and plosser 29 suggest that real economic activity for the united states exhibits near random walk behavior in autoregressive conditional heteroscedastic arch models the conditional variance is a function of past squared innovations while the conditional mean is constant applications of arch and related models beginning with engle 17 suggest that real activity exhibits heteroscedastic variances

the rationality of economic voting and the macroeconomic regime since voter rationality plays a major role in theories of political economics it is important for political analysts to investigate the extent of voter sophistication a conventional strategy for addressing this question is to determine what decision rule voters appear to use by estimating rival political support models that embody varying assumptions about voter rationality however under some circumstances such a strategy may be incapable of identifying the descriptively superior model due to an observational equivalence problem the paper estimates the competing political support models under alternative macroeconomic regimes and finds evidence favoring the nonrationalist or adaptive model

securities analysts and incumbent response to radical technological change evidence from digital photography and internet telephony a large body of research has explored the factors that impede established firms responses to radical technological changes while it is widely acknowledged that managers face pressures from financial markets to choose strategies that maximize shareholder value little work in the technological change literature has considered the possible influences of public equity markets and the securities analysts who mediate them on incumbent firms challenged with technological change in this paper i begin to address the topic by empirically exploring how securities analysts react to the different strategies undertaken by incumbent firms faced with radical technological change i study the question in two settings the shift to digital technology in photography and the advent of voice over internet protocol voip technology in wireline telecommunications i find evidence that analysts are more attentive and positive toward incumbents strategies that extend and preserve the existing technology than toward strategies that respond directly to the new technology in these settings analysts largely ignore incumbents strategies that directly incorporate the new technology for several years following the discontinuity this study provides insights into the nature and direction of analysts reactions to firms strategies in the context of technological change and is a first step toward better understanding of the potential role of analysts and financial markets in incumbent adaptation

opinion polls and political business cycles theory and evidence for the united states the paper shows that the frey schneider schultz hypothesis that there is a negative relation between the government s popularity and the government s incentives to engineer political business cycles is consistent with rational forward looking voting provided one makes appropriate assumptions about the incumbent s preferences the empirical part of the paper presents evidence favourable to the hypothesis using quarterly data on us money growth

security analysts career concerns and herding of earnings forecasts several theories of reputation and herding see e g scharfstein and stein 1990 suggest that herding among agents should vary with career concerns our goal in this paper is to document whether such a link exists in the labor market for security analysts specifically we look at the relationship between an analyst s job tenure a proxy for career concerns and various measures of stock earnings forecast performance we establish the following key results 1 older analysts are more likely to produce earnings forecasts of firms before younger ones 2 their forecasts also deviate more from the consensus forecast than their younger counterparts we argue that these results are consistent with some reputational models of herding we also establish a number of auxiliary findings regarding the relationship between forecast accuracy and frequency of forecast revisions with job tenure

a commentary on does the fed contribute to a political business cycle abrams and iossifov 2006 find that during 1957 2004 monetary policy turned significantly more expansionary prior to u s presidential elections when the federal reserve chairman and the incumbent president belonged to the same political party however their long sample period obscures changes in trends during the period stemming from advances in macroeconomic theory and in the implementation of monetary policy indeed when one considers only the volcker greenspan era 1979 2004 there is insufficient evidence to accept the notion of a political business cycle effect

catalytic finance when does it work in a model of debt crisis caused partly by creditor coordination failure we show that bailouts that reduce ex post inefficiency will sometimes enhance the incentives for governments to take costly adjustment effort this model helps us understand a debate about the role of the imf in catalyzing lending to developing countries

tenure issues in higher education the system of tenure that dominates american higher education has long been a source of controversy the institution of tenure has been attacked for entrenching a lazy professoriate more interested in attending faraway conferences and producing unreadable research than in teaching or developing practical insights while on the other hand it has long been defended as an absolute necessity for the defense of open intellectual inquiry the tenure controversy has been sharpened in recent years by several events the end of mandatory retirement which was abolished by federal law effective january 1 1994 has heightened concerns about the productivity and commitment of professors who received tenure long ago and who no longer have the same incentives to invest in long term reputation there is also ongoing concern over the steadily rising cost of higher education which raises the question of what students as well as the taxpayers who support public institutions of higher education are getting for their money 1 the idea that tenure is a wasteful institution for universities runs up against the puzzling fact that the commitment to tenure is one that academic institutions impose on themselves although the american association of university professors aaup provides a powerful lobby in favor of tenure generally colleges and universities most notably private ones are under no legal requirement to observe tenure constraints although as administrators we certainly feel the weight of those constraints our view is that a tenure system in fact provides important benefits to society and to colleges and universities we argue here that the role of tenure is

identification and estimation of money demand in most natural sciences physics chemistry biology theories are validated by controlled experiment however in other natural sciences astronomy meteorology and in most social sciences including economics the data are characteristically generated not by experiment but by measurement of uncontrolled systems in economics theories take the form of restrictions on the models assumed to generate the data and statistical methods replace experimental controls in testing these restrictions and here is the difficulty in economics particularly macroeconomics the theory used to derive tests ordinarily does not generate a complete specification of which variables are to be held constant when statistical tests are performed on the relation between the dependent variable and the independent variables of primary interest accordingly in such cases there will be a set of often very different candidate regression based tests each of which has equal status with the others since each is based on a different projection of the same underlying multivariate model except in the unlikely event that the explanatory variables are mutually orthogonal the conditional regression coefficients which generally form the basis for the test statistic will depend on the conditioning set we conclude from this that if a theory which does not generate a complete specification of the regression test is nonetheless to have testable implications these implications must be robust over the permissible alternative specifications if the restrictions indicated by the theory are satisfied in some projections but not in others that have an equal claim to represent implications of the theory one cannot conclude that the theory has been confirmed the fact that the observable implications of valid theories must obtain over a broad but usually incompletely specified set of regressions rather than for a single regression introduces a large and unavoidable element of imprecision into hypothesis testing in macroeconomics generally it appears to be appropriate to weaken the statistical criterion for rejecting theories consider for example the theory of money demand which will engage our attention in this paper the tobin baumol square root formula implies that the elasticity of money demand with respect to the interest rate is exactly one half but which interest rate should wealth be held constant inflation in view of such uncertainties it would be inappropriate to insist in a literal minded fashion on rejecting the tobin baumol model if in some regression the measured interest elasticity differed from one half by more than two standard deviations and only then obviously a more flexible approach is called for the practice has been to conclude that the statistical evidence is consistent with the tobin baumol model as long as the interest rate coefficient is negative if it is negative and significant or negative and insignificantly different from minus one half that would provide somewhat stronger confirmation but a positive coefficient particularly a significantly positive coefficient would be viewed as raising questions about the validity of the theory in macroeconomics generally as in the money demand application the typical response to specification uncertainty has been to regard a theory as supported if the signs of the estimated coefficients agree with those expected from theory and as disconfirmed otherwise there is no theoretical justification for this procedure but it seems to be a reasonable course to follow the point that economic theory ordinarily generates incompletely specified statistical university of california santa barbara we have received helpful comments from andrew abel robert clower michael darby robert engle stephen goldfeld david laidler edward leamer robert lucas frederic mishkin and edward prescott thomas hall provided able research assistance

the federal reserve s response to aggregate demand and aggregate supply shocks evidence of a partisan political cycle the orthodox approach to modeling the fed s response to economic conditions is to employ a monetary policy reaction function most reaction functions are estimated by regressing a policy indicator possibly the federal funds rate or a monetary aggregate on variables that describe the state of the economy such as unemployment inflation and growth in output under certain conditions which we discuss below estimated coefficients from a reaction function provide information about the fed s monetary policy priorities moreover extending the model to include election and partisan dummy variables may provide information about the fed s response to political pressures there are two problems with interpreting the coefficients in a standard reaction function as the weights that the fed attaches to its policy objectives first the monetary policy decision may not be represented accurately by an aggregate reaction function one that models the fed as a whole because there are twelve voting members on the fomc chappell havrilesky and mcgregor 10 have recently addressed this issue by employing a disaggregated set of reaction functions the second problem with interpreting reaction function coefficients as the weights the fed places on its policy objectives is that this interpretation implicitly assumes structural stability of the underlying macroeconomy abrams froyen and waud 1 31 acknowledge this shortcoming when they state coefficients from estimated reaction functions do not provide direct information on policymaker utility functions rather than being the solution to an unconstrained optimization dependent only on policymaker preferences reaction functions are the output of a constrained maximization where the constraints are the reduced form equations that characterize

managerial commitments and technological change in the us tire industry this paper examines the response of the five largest american producers of automotive tires to a radical technological change the introduction of radial tires many theories attempt to explain firms response to radical technological change the effects of new technologies on economic incentives and on established firm capabilities are the factors highlighted in existing theory the tire producers invested heavily in radial technology despite the expected destruction of manufacturing competencies and the prospect of poor financial returns this paper suggests that an additional factor managerial commitments can also play an important role in shaping firms response to disruptive technology it argues that firms are more likely to adopt commitment enhancing than commitment destroying technologies and are likely to choose paths of implementation that are compatible with existing commitments copyright 1997 by oxford university press

competing commitments technocracy and democracy in the design of monetary institutions in this article i refine and expand the agenda for research on monetary institutions first i evaluate the analyses and research designs presented in this special issue of international organization out of this evaluation several ideas about how to produce a third generation of research on this topic emerge specific ideas include how to create a better synthesis with certain branches of economics such as information economics broaden the welfare criteria on which institutional choices are made deepen the analyses of coalitional and other political processes on which the choice of institutions are based and strengthen the tests that are offered in support of these choices in the second part of this article i explore questions of how popular sovereignty over economic policy and institutional choice are achieved i show that the institutional regimes proposed in the special issue are in a sense democratic as long as the public s perceived consensus about economic policies and macroeconomic outcomes is real however if as new work suggests there is genuine dissensus about policy and macroeconomic objectives it is no longer clear that the regimes proposed in the special issue are democratic in the conclusion i briefly discuss a possible crisis of imagination in institutional design