Showing papers by "London School of Economics and Political Science published in 1989"

Transmission of Volatility Between Stock Markets

Abstract: This paper investigates why, in October 1987, almost all stock markets fell together despite widely differing economic circumstances. The idea is that "contagion" between markets occurs as the result of attempts by rational agents to infer information from price changes in other markets. This provides a channel through which a "mistake" in one market can be transmitted to other markets. Hourly stock price data from New York, Tokyo and London during an eight month period around the crash offer support for the contagion model. In addition, the magnitude of the contagion coefficients are found to increase with volatility.

Structural Realism: The Best of Both Worlds?*

Abstract: Summary The main argument for scientific realism is that our present theories in science are so successful empirically that they can’t have got that way by chance - instead they must somehow have latched onto the blueprint of the universe. The main argument against scientific realism is that there have been enormously successful theories which were once accepted but are now regarded as false. The central question addressed in this paper is whether there is some reasonable way to have the best of both worlds: to give the argument from scientific revolutions its full weight and yet still adopt some sort of realist attitude towards presently accepted theories in physics and elsewhere. I argue that there is such a way - through strucfurul realism, a position adopted by PoincarC, and here elaborated and defended. Resume L’argument principal en faveur du realisme scientifique, c’est que nos theories scientifiques actuelles sont empiriquement si efficaces que cela ne peut pas Etre di3 au hasard - on doit en quelque sorte avoir decouvert les plans de I’univers. L’argument principal contre le realisme scientifique, c’est qu’il y a eu des theories scientifiques massivement efficaces qui ont ete autrefois tenues pour vraies mais sont considerkes aujourd’hui comme fausses. La principale question traitee dans ce papier, c’est s’il y a un moyen raisonnable de prendre le meilleur des deux mondes: de donner tout son poids a l’argument tire des revolutions scientifiques et d’adopter pourtant une sorte d’attitude realiste a I’egard des theories actuellement acceptkes en physique ou ailleurs. Je rnontre qu’une telle voie existe: le realisme sfrucfurel, une position adoptke par Poincare, que je defends et dkveloppe ici. Zusammenfassung Das Hauptargument fur wissenschaftlichen Realismus ist, dass unsere gegenwartigen Theorien in der Wissenschaft empirisch so erfolgreich sind, dass sie nicht zuftilligerweise so geworden sein kdnnen - statt dessen miissen sie irgendwie mit dem Plan des Universums Ubereinstimmen. Das Hauptargument gegen den wissenschaftlichen Realismus ist, dass es ausgesprochen erfolgreiche Theorien gegeben hat, die einmal akzeptiert gewesen waren, aber jetzt als falsch betrachtet werden. Die in diesem Papier behandelte Kernfrage lautet, ob es einen verniinftigen Weg gibt, aus beiden Weltcn das Beste zu haben: dem Argument vom Vorhandensein wissenschaftlicher Revolutionen sein volles Gewicht zu geben und dennoch eine Art von realistischer Einstellung gegeniiber den heute in der Physik und anderswo akzeptierten Theorien einzunehmen. Ich argumentiere, dass es einen solchen Weg gibt - durch den von Poincart iibernommenen strukturellen Realismus, der hier ausgearbeitet und verteidigt wird.

The Economics of Development: A Survey

Abstract: I. THE SUBJECT Our definition of the subject will be the use of economic analysis to understand the economies of poor or developing countries. This includes, in particular, how standards of living in the population are determined, and how they change over time, and further how policy can or should be used in the influence of these processes. The definition contains, in principle, much or most of analytical methods in economics insofar as they can be put to use in the examination of the issues of interest. This is as it should be but it poses a problem for a survey in a journal. A comprehensive treatment is infeasible so we shall follow a different route. The survey will focus on what I take to be the major themes and approaches which characterise the productive aspects of the subject. There is, therefore, no pretence at being exhaustive. The purpose is rather to highlight some of the advances. Many of these have been of real substance. There are a number of possible purposes for a survey and it is important to be clear at the outset for whom it is intended, what it is, and what it is not. This survey is addressed to economists and students of economics who .know the tools of their trade but not necessarily how they have been applied to, and fashioned for, the analysis of the economics of developing countries. It is a description of the ways in which problems can be productively formulated and approached, in terms of examples chosen for their intrinsic importance and interest. The vastness of the subject means that we have to be highly selective. It does not seek to provide a summary evaluation of the current view of the 'appropriate' response to immediate policy questions. It is not a history of thought, nor a research manifesto nor an attempt to adjudicate or settle the major debates. Where they arise naturally from the major purpose some judgements on these subjects will be offered, but they do not themselves constitute the primary intent of this survey. There are three lines of enquiry, or sets of questions, which have, I suggest, been distinctive of the most fruitful work in development economics. They will

An Outside Option Experiment

Abstract: In the economic modeling of bargaining, outside options have often been naively treated by taking them as the disagreement payoffs in an application of the Nash bargaining solution. The paper contrasts this method of predicting outcomes with that obtained from an analysis of optimal strategic behavior in a natural game theoretic model of the bargaining process. The strategic analysis predicts that the outside options will be irrelevant to the final deal unless a bargainer would then go elsewhere. An experiment is reported which indicates that this prediction performs well in comparison with the conventional predictor.

Unemployment and the Inter-Regional Mobility of Labour

Abstract: The relationship between unemployment and interregional labor migration in the United Kingdom is explored using data from the Labour Force Survey for 1984 and 1977. The authors conclude that the experience of unemployment increases the likelihood of migration and that households in areas of high unemployment are more likely to move. They also find that during periods of higher overall unemployment migration propensities are reduced. (ANNOTATION)

The Conduct of Monetary Policy

Abstract: Nowadays the Central Bank of a country is the monopoly supplier of legal tender currency. The commercial banks are committed to making their deposits convertible at par into such currency. So the banks need to keep reserves in the form of currency and deposits at the Central Bank. The Central Bank primarily conducts its policy by buying and selling financial securities, e.g. Treasury bills or foreign exchange, in exchange for its own liabilities, i.e. open market operations. Academic economists generally regard such operations as adjusting the quantitative volume of the banks' reserve base, and hence of the money stock, with rates (prices) in such markets simultaneously determined by the interplay of demand and supply. Central Bank practitioners, almost always, view themselves as unable to deny the banks the reserve base that the banking system requires, and see themselves as setting the level of interest rates, at which such reserve requirements are met, with the quantity of money then simultaneously determined by the portfolio preferences of private sector banks and non-banks. This difference in perceptions is discussed again in Section III. Whether the monetary policy operations of Central Banks should be viewed primarily in terms of quantity, or rate, setting actions, (though, of course, one is the dual of the other), these had allowed inflation, and inflationary expectations, to become entrenched by the end of the I970s. A selection of representative statistics for a number of the leading industrialised countries is given in Table i below. This table indicates a common pattern, among the countries, of interaction between interest rates, inflation and the growth of output. The first period, I969-78, is marked by high inflation, negative real interest rates, and slightly above average growth; the second period, I979-82, by very high nominal, and high real, interest rates, high (but falling) inflation, and very low output growth. The final period, i983-7, is marked by much lower inflation, lower nominal, but still high real, interest rates, and a recovery in output growth, in some cases to above average rates. In contrast, the relationship in these countries between the growth of their chosen key monetary aggregate and nominal incomes appears much weaker; also see Clinton and Chouraqui (I987), especially p. 7. Whether measured in terms of monetary growth, or in terms of' real' interest rates, i.e. after adjustment for prospective future inflation, policy during the

The Social Science Encyclopedia

Abstract: * Abnormal Psychology * Accounting * Adolescence * Advertising * Anarchism * Anthropology * Archaeology * Aristotle * Banking * Behaviourism * Jeremy Bentham * Business Studies * Cannibalism * Capital Punishment * Capitalism * Child Care * Noam Chomsky * Communications * Communism * Conservatism * Corporate Enterprise * Criminology * Cultural History * Charles Darwin * Democracy * Divorce * Drug Use * Eating Disorders * Economics * Education * Environment * Family * Feminist Theory * Sigmund Freud * Gender and Sex * Geography * History * David Hume * Incest * Individualism * International Relations * Interviews and Interviewing * Judicial Process * John Maynard Keynes * Language and Culture * Law * Libido * Linguistics * Machiavelli * Karl Marx * Media and Politics * Memory * Mental Health * Mortality * Nature * Orientalism * Patriarchy * Peasants * Penology * Political Theory * Power * Psychology * Punishment * Racism * Religion and Ritual * Sexual Behaviour * Sociology * Sport * Taboo * Taxation * Urban Planning * Violence * Voting * War Studies * Welfare State * Wittgenstein * Work and Leisure

Intertemporal substitution, risk aversion and the Euler Equation for consumption

Abstract: This paper investigates the empirical performance of intertemporal optimization models that relax the restriction imposed by expected utility that risk aversion and intertemporal substitution are negatively related. The authors estimate a system of rates of return and consumption growth equations, and interpret their results in the light of the expected utility, the ordinal certainty equivalence, and the Kreps and Porteus (1978) models. Their results are based on average cohort data for consumption, and thus should not reflect births or deaths. They suggest that non-expected-utility models afford major efficiency gains in the estimation of the elasticity of intertemporal substitution by providing simple cross-equation restrictions.

Insider Forces And Wage Determination

Abstract: This paper attempts to assess the relative importance of firm-specific factors (i.e., insider forces) in wage determination. Using firm-level data on 219 UK companies over the period 1974-82, it finds that a 1% rise in a firm's prices or productivity relative to the aggregate economy leads to a rise in relative wages of 0.1-0.2%. As a corollary to this, outside factors such as the aggregate wage and the unemployment rate also play an important role. There is evidence for hysteresis effects based on insider forces, but these are inversely related to the extent to which firms take national agreements into account.

Output and unemployment dynamics in the United States: 1950–1985

Abstract: For US data over 1950–1985 the stochastic components of GNP growth and the unemployment rate appear to be stationary, and there is substantial feedback between these variables. The unconditional mean rate of unemployment in a joint model thus provides a natural benchmark in discussions of the ‘business cycle’. A bivariate VAR model is used to describe output–unemployment dynamics, to estimate the degree of persistence of output innovations, and to decompose output into trend and cycle. The bivariate results are interpreted using a restricted VAR and it is shown that a closely related cyclical measure can be obtained directly from the Okun's Law equation.

Assembling for Development: The Maquila Industry in Mexico and the United States

Abstract: 1. The Maquillas in Global Perspective 2. The Border Context 3. Phases of Maquilla Expansion 4. The Californias 5. Paso del Norte 6. The Valley 7. The Long March to the Interior 8. Labor, Gender, and Politics 9. The Maquilla Strategy 10. The Reformation of Capitalism and the Future of the Maquilas

The origins of nations

Abstract: Although the nation, as a named community of history and culture, possessing a common territory, economy, mass education system and common legal rights, is a relatively modern phenomenon, its origins can be traced back to pre‐modern ethnic communities. Such named ethnies with their myths of common descent, common memories, culture and solidarity, and associations with a homeland, are found in both the ancient and the medieval periods in many areas of the world. Two kinds of ethnie are important for the origins and routes of the formation of nations. Territorial, ‘civic’ nations tend to develop from aristocratic ‘lateral’ ethnies through a process of ‘bureaucratic incorporation’ of outlying regions and lower classes into the ethnic culture of the upper classes, as occurred in France, England and Spain. The more numerous ‘ethnic’ nations, on the other hand, have emerged from demotic ‘vertical’ ethnies through processes of cultural mobilization that turn an often religiously defined and passive comm...

Insider Power in Wage Determination

Abstract: The paper argues that wage determination is best seen as a kind of rent sharing in which workers' bargaining power is influenced by conditions in the external labour market. It uses British establishment data from 1984 to show that pay depends upon a blend of insider pressure (including the employer's financial performance and oligopolistic position) and outsider pressure (including external wages and unemployment). Lester's feasible 'range' of wages appears typically to be between 8% and 22% of pay. Estimates of the unemployment elasticity of the wage lie in a narrow band around -0.1.

Research directions in accounting history

Abstract: Accounting has sometimes been criticised as an illegitimate field for historical study. This paper examines three interrelated approaches to historical accounting research: the attempt to understand the past for its own sake, the locating of accounting in its sociohistorical context and the application of positive accounting theory to history. By identifying the potential for fruitful development in each of these three research directions, the paper concludes that there is a wide and growing role for historical accounting studies.

Hypothesis Testing in Semiparametric and Nonparametric Models for Econometric Time Series

Abstract: A restriction on a semiparametric or nonparametric econometric time series model determines the value of a finite-dimensional functional τ of an infinite-dimensional nuisance function. The estimate of τ and its estimated covariance matrix use nonparametric probability and spectral density estimation. A consequent test of the restriction is given approximate large sample justification under absolute regularity on the time series and other conditions. The methodology relates closely to recent proposals of Powell, Stock, Stoker and Robinson in cross-sectional applications, but serial dependence generally affects the test statistic's form, as well as statistical theory.

Water Notes Dry Up: The Impact of the Donovan Reform Proposals and Thatcherism At Work on Labour Productivity in British Manufacturing Industry

Abstract: Britain's industrial strategy was not equal to the task of overcoming the massive inertial resistance to change manifested by the British industrial system—not least because it still failed altogether to address the problem of the trade unions, possibly the strongest single factor militating against technical innovation and high productivity

Endogenous growth and the procyclical behaviour of productivity

Abstract: In this paper a model with endogenous growth is used to explain the procyclical behaviour of productivity. Periods when the marginal return to goods production is high are associated with low levels of human capital formation and other investment-like activities. In particular, the model successfully explains the surges in productivity exhibited in the UK during wartime and the apparently permanent effect of the level of defence spending on the growth of total factor productivity.

Hierarchies and American Ideals, 1900–1940

Abstract: This paper addresses the processes of reconciling hierarchies and American ideals and suggests ways in which the socially functional and radical traditions of corporate history could be extended to include such concerns. It focuses on the concepts through which hierarchies and managerial authority were rendered thinkable as positive components within American society and traces the formation of the notion of a dispassionate, professional managerial authority exercised through corporate hierarchies out of the ideals of American political culture. The reconciliation of hierarchy with American political culture is analyzed across the period 1900–1940 in three sections: the Progressive years, the 1920s, and the 1930s. This focus on a period that was decisive for both the modern corporation and the administrative literature associated with it provides considerable scope for extending critical studies of the corporation and management.

Capital shortages and persistent unemployment

Abstract: Capital shortage Charles Bean Over the last 10 years the rate of investment has been depressed throughout the European Community, Some people believe that as a result there is insufficient capacity to absorb the unemployed in the event of a recovery in real demand. I estimate the size of this ‘capital gap’ and find that investment may need to rise by as much as 20% above the levels experienced during the first half of the 1980s, However, this represents no more than a return to the investment rates of the early 1970s, Furthermore firms will respond to capital shortages by installing new capital provided it is profitable. Thus the required resurgence in investment will arise automatically, so that capacity shortages are likely to be a temporary phenomenon at worst. The real obstacles to a rapid return to full employment lie elsewhere, paticularly in the labour market. The presence of such transient capacity shortages during any sustained recovery does not, by itself, justify policy measures discriminating in favour of investment, for there is no obvious market failure involved. However, a sustained recovery will almost certainly be associated with a significant spurt in investment. It is quite appropriate for this to be financed by borrowing from abroad, so governments should be willing to see a deterioration in their current accounts and should not adopt deflationary macroeconomic policies to restrain demand.

Information content of cash flow figures

Abstract: This paper investigates the link between earnings and share prices for a sample of UK companies for the years 1961 to 1977. Three measures of earnings were used: the traditional historical cost accounting return and two which were closer to cash flow measures. The strength of the link between earnings and cumulative abnormal returns was investigated relative to the level of inflation. The results indicate that, while there is substantial information content in the traditional historical cost rate of return, there is very little information conveyed by the measure closest to pure cash flow. No support was therefore found for the use of cash flow based reports. Evidence was found showing substantial changes in the nature of the relationship between accounting and stock returns, but this could not be explained by the effects of inflation.

The Limits to Coercive Consociationalism in Northern Ireland

Abstract: The merits of consociation as a means of solving the Northern Ireland conflict are presented through contrasting it with other ways of stabilizing highly divided political systems. Why voluntary consociation has been unsuccessful in Northern Ireland and unfortunately is likely to remain so is explained. The signing of the Anglo-Irish Agreement (AIA) must be understood against the background of the failure of previous consociational experiments. The AIA partly represented a shift in British strategy from voluntary to coercive consociationalism. The prospects for this coercive consociational strategy and variants on it are evaluated.Irish history is something Irishmen should never remember, and Englishmen should never forget.

An Intertemporal Equilibrium Beta Pricing Model

Abstract: This article develops an intertemporal, discrete-time, competitive equilibrium version of the arbitrage pricing theory (APT) and explores the econometric implications of this model under various restrictions on investor preferences and on the dynamic behavior of dividends. We describe conditions under which the econometric techniques typically used for estimating and testing the APT can be shown to be consistent with our economic model. We relate our intertemporal version of the APT to the static APT and to Merton's intertemporal capital asset pricing model.