the measurement of profitability and the diagnosis of market power this paper develops a model which yields the specification of an empirical test for the difference between price and marginal revenue which will be significantly positive if a firm exercises market power the test can be carried out with any of a number of commonly used measures of accounting profitability and embodies a specific functional form for the consideration of nonconstant returns to scale the model is estimated for four firms in the medical surgical supply industry and four firms in the motor vehicle industry the results are consistent with the hypothesis that product differentiation is an important basis for firm specific market power import quotas are shown to increase market power in the motor vehicle industry claims that accounting data cannot be used to analyze market power are rejected

responses in output to monetary shocks and the interest rate a rational expectations model with working capital abstract empirical studies show that when the interest rate is included money loses its predictive power on output this paper explains this finding by using a rational expectations model where production decisions of firms require debt financed working capital the cost of working capital the interest rate affects the supply side monetary shocks affect the interest rate and thus affect the price and output produced by firms the model shows that this can cause the predictive power of monetary shocks on output to diminish when the interest rate is used in empirical analysis the model also alludes to the effects of monetary policy on the price level through the supply side cost push factors

the federal funds rate and the channels of monetary transmission the authors show that the interest rate on federal funds is extremely informative about future movements of real macroeconomic variables then they argue that the reason for this forecasting success is that the funds rate sensitively records shocks to the supply of bank reserves that is the funds rate is a good indicator of monetary policy actions finally using innovations to the funds rate as a measure of changes in policy the authors present evidence consistent with the view that monetary policy works at least in part through credit i e bank loans as well as through money i e bank deposits copyright 1992 by american economic association

working capital and fixed investment new evidence on financing constraints this article presents new tests for finance constraints on investment by emphasizing the often neglected role of working capital as both a use and a source of funds the coefficient of endogenous working capital investment is negative in a fixed investment regression as expected if working capital competes with fixed investment for a limited pool of finance this finding addresses a criticism of previous research on finance constraints that cash flows may simply proxy shifts in investment demand in addition previous studies may have underestimated the impact of finance constraints on growth and investment because firms smooth fixed investment in the short run with working capital

an ethanol blend wall shift is prone to increase petroleum gasoline demand abstract in 2010 the u s environmental protection agency announced a waiver allowing an increase in the fuel ethanol blend limit the blend wall from 10 e10 to 15 e15 justifications for the waiver are reduced vehicle fuel prices and less consumption of petroleum gasoline leading to greater energy security empirical investigations of this waiver using monte carlo simulations reveal an anomaly where a relaxation of this blend wall elicits a demand response under a wide range of elasticities this demand response can actually increase the consumption of petroleum gasoline and thus lead to greater energy insecurity the economics supporting this result and associated policy implications are developed and discussed

alternative methods of depreciation and the reliability of accounting measures of economic profits most u s firms use straight line depreciation some use accelerated depreciation a series of monte carlo experiments were conducted to show how a proposed switch to annuity depreciation would affect accounting estimates of two measures of economic profitability the rate of return and q the ratio of a firm s market value to its replacement cost annuity depreciation significantly improved the accounting rate of return but had little effect on estimates of q some of the improvement in the rate of return and almost all the improvement in q could be obtained if all firms used straightline depreciation

a reconsideration of sims evidence concerning monetarism abstract in var systems such as those of sims 1980 monetary policy surprises may be more accurately represented by interest rate than money stock innovations especially if the monetary authority uses an interest rate instrument

models and their uses it is argued that economists ought to recognize that modeling in different styles will be appropriate for different purposes or different stages in the development of an area of economics as an example the paper displays simulations of a stochastic general equilibrium model which shed light on the interpretation of widely discussed small macroeconomic vector autoregressive models connecting monetary variables to output and prices this abstract was borrowed from another version of this item

money does granger cause output in the bivariate money output relation abstract a bivariate granger causality test on money and output finds statistically significant causality when data are measured in log levels but not when they are measured in first differences of the logs bootstrap simulation experiments indicate that most probably the first difference results reflect lack of power whereas the level results reflect granger causality that is actually in the data the reason for the lack of power in the first difference f statistic is that first differencing the data appears to entail a specification error by showing that money does granger cause output in the bivariate relation we remove a potential embarrassment for models that assign an important role to money in business fluctuations

evaluating q as an alternative to the rate of return in measuring profitability the ratio of a firm s market value to its replace ment cost q is often used to measure firms profitability the use of q is increasin g in large part because of the growing realization that errors in evaluating firms capital assets may cause errors in estimates of the accounting rate of return r the same objection however applies t o q this paper reports the results of monte carlo experiments designed to determine whether q is superior to r errors in both q and r are large and potentially serious but do not render either measure useless copyright 1988 by mit press

structure and performance with profit measures based on stock market prices the theory that there is a causal relationship between industry structure conduct and performance is the fundamental premise in the field of industrial organization the most carefully researched component of that general theory is the hypothesis that increasing industrial concentration will give rise to increasing profits this traditional view is important not only because of its prominence in the academic analysis of industrial markets but also because of its implications for government policy especially antitrust policy the traditional view typically has been tested by treating an accounting based measure of industry profit as the dependent variable with concentration and other structural variables as independent variables within a cross section of manufacturing industries at a given point in time numerous papers have found that concentration has a positive impact on profits the methodology adopted in this paper is different the profit measures are based on stock market prices and are adjusted for risk this is an improvement because accounting methods are so poorly adapted to the measurement of economic profit and because risk may vary with concentration 2 39 another methodological innovation is the choice of time series over cross section analysis the question asked is whether the change over time in each industry s level of concentration had an impact on profits this minimizes the problem of omitted or inaccurately measured independent variables since there should be less change in basic structural characteristics over short time periods within an industry than between industries at a single point in time 2 a second important advantage is freedom from a basic assumption of crosssection studies the assumption that the relationship between concentration and profit is homogeneous across industries if the assumption is invalid empirical results are subject to bias two tests 7 26 have firmly rejected the homogeneity assumption 3

profitability and price flexibility in manufacturing for a developing country this paper reports on an econometric structure performance model for a mixed market developing economy the east african state of malawi a simultaneous equation model which was cross sectionally heteroskedastic and time wise autoregressive was estimated by instrumental variables using published and some new unpublished data a binary probit model was estimated using new primary source data scarce factors like working capital and imported raw materials were found to be significant determinants of price cost margins further for the firms in the survey upward price flexibility was found to be significantly influenced by reported input scarcities copyright 1991 by blackwell publishing ltd

interpreting the macroeconomic time series facts the effects of monetary policy existing theory and evidence on the effects of monetary policy are reviewed substantial room for disagreement among economists remains new evidence based on multivariate time series studies of several countries is presented while certain patterns in the data consistent with effective monetary policy are strikingly similar across countries others particularly the tendency of interest rate increases to predict high inflation are harder to reconcile with effective monetary policy

domestic concentration foreign trade and economic performance abstract in a competitive fringe model the impact of concentration on price cost margins can be shown to be ambiguous therefore looking at the relationship between rates of return and concentration ratios is not sufficient for perceiving collusive elements in this paper a model is set up that permits discerning collusion more clearly additional evidence concerning collusion can be gained by analyzing the influence of exports and imports on price cost margins applying this approach to west germany yields the result that the collusiveness prevailing in domestic markets has not visibly decreased in spite of a substantial increase in foreign trade