Business Economics -July 2000
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| Front Matter -- Masthead,
Board of Editors, Guidelines, From The Editor (PDF 37 K) |
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| Philip A Klein and Edgar Fiedler | In Memorium - Geoffrey H.
Moore (PDF 15 K) |
| Lloyd B Thomas Jr, and Alan P. Grant | Forecasting Inflation --
Surveys Versus Other Forecasts Few forecasts are as common in business as forecasts for inflation. Surveys, time-series methods and structural econometric models are the most frequently used means for making such forecasts. In addition, it may be possible to infer future inflation forecasts from the behavior of financial markets. This study takes representative examples from each genre and makes a systematic comparison of how well they performed in the 1980s and 1990s. The results indicate that there is little difference between structural models and surveys. Both are markedly superior, however, to an ARIMA time series model and to inferences from financial markets. Thus, cost and other factors may be the major determinants in each firm’s choice between structural models and surveys. (PDF 82 K) |
| Charles W Bischoff, Haleform Belay and In-Bong Kang | Bayesian VAR Forecasts Fail
to Live Up to Their Promise Macroeconomic forecasts from vector autoregression (VAR) models, in which the data are combined with Bayesian prior distributions on the coefficients, gained great popularity in the 1980s. The prior distribution known as the "Minnesota Prior" was used to make forecasts starting in 1980. These forecasts seemed, for a time, to not only equal but even to surpass those of the consulting groups selling forecasts based on large, judgmentally adjusted econometric models. Using actual forecasts made by the group then called DRI between 1981 and mid-1996, we find the forecasts based on the "Minnesota Prior" did not continue their early success, even when they are averaged with the DRI forecasts. (PDF 57 K) |
| S.L. Bachman | The Political Economy of
Child Labor and Its Impact on International Business Child labor is linked to global business directly and, more commonly, indirectly. Critics blame increased trade and financial flows for increased child labor, and those criticisms have undermined the legitimacy of further trade and financial liberalization. Companies—including multi-nationals such as Nike, Wal-Mart, Ikea and the Brazilian subsidiaries of U.S. and European automobile manufacturers— have responded with a range of initiatives. Unless business responses alleviate the worst forms of child labor, the legitimacy of continued trade and financial liberalization will continue to be undermined by perceptions that liberalization disproportionately hurts children, especially child workers. (PDF 67 K) Public Section |
| Thomas W Synnott III | Remaking the World Financial
System Globalization of production and investment in recent years has led to an enormous expansion of private long-term capital flows from advanced economies to developing countries. While contributing greatly to economic growth and development in the countries receiving them, these capital flows have led to increased risks for multinational businesses, banks and the world financial system itself. Interaction between fluctuations in these flows and changes in the exchange rates of the key currencies has led to a series of financial crises requiring massive support from the U.S. and other major financial powers. In the recent Asian crisis, significant disruptions to international trade—including U.S. exports—occurred, in addition to the human costs of economic contractions. These in turn can threaten political stability, as in the case of Indonesia. In response, the leading industrial countries—the G-7—have embarked on an effort to reform the world financial system. (PDF 60 K) |
| Jian-Chiu Han | Equity Valuation Cannot Outgrow
the Economy Over the Long Run Over the very long term the total dividend and capitalization of an economy’s equity market should grow at the same rate as the GDP. Using this relationship, the expected total return to the equity market is the sum of the expected GDP growth rate and current dividend yield. Long-term U.S. historical data show a remarkable consistency with this proposition. A risk premium parameter that takes into account GDP growth potential, the interest rate and the dividend yield is identified. An equation that relates the risk premium to the interest rate and dividend yield is derived using the familiar LM curve of macroeconomic theory. Using this equation, it is suggested that bond prices are the ultimate check that brings stocks and GDP growth in line over the long run. (PDF 45 K) |
| William F Ford | Economic Implications of
"The Senior Citizens' Freedom to Work Act of 2000" On April 7, 2000 President Clinton signed “The Senior Citizens’ Freedom to Work Act” (the Act). This legislation sharply reduces the Social Security Act retirement benefit penalties previously imposed on workers aged sixty-five to sixty-nine who earned more than nominal incomes after enrolling in the program. This paper describes the Act’s major features and how they will impact the earnings streams of current and future beneficiaries. It then explores the implications for labor force participation, aggregate output, and federal revenue and expenditure—concluding that the net impact may be to increase federal surpluses. It is likely to create complex employment issues and increased private-sector costs, particularly during an economic down-turn. (PDF 27 K) |
| Robert P Parker and C Brian Grove | Focus On Statistics Census Bureau Moves Ahead on Measuring E-Business (PDF 22 K) |
| Andrew C Gross and Edward D Hester | Focus on Industries and Markets:
Heavy Construction Equipment: Vitality in an "Old Economy Sector The world demand for heavy construction equipment is projected to increase by 5.9 percent per year through 2003, almost identical to the 1993-1998 rate and exceeding the rate projected four years earlier. Continued healthy growth is attributed in part to the recovery from recession in several Asian countries. Solid growth is also expected in Latin America and Africa. A minor, cyclical slowdown, however, in the mature markets of North America and Western Europe is likely. The industry is not as heavily concentrated as before, but acquisitions are still ongoing and strategic partnerships are on the rise. Competition is keen, and price increases tend to be modest. Equipment rental and leasing are also popular. Technical advances in equipment design and security assist in marketing efforts. (PDF 36 K) |
| Forum on Emerging Issues Is the US Current Account Deficit Sustainable? by Francis H Schott Implications of the Treasury Buy-Back Program by R. McFall Lamm, Jr (PDF 22 K) |
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| Book Reviews | Mathias Binswanger, Stock
Markets, Speculative Bubbles and Economic Growth: New Dimensions in the
Co-evolution of Real and Financial Markets Edmund A. Mennis
Deirdre N. McCloskey, Economical Writing Edward Steinberg Herbert Stein and Murray Foss, The Illustrated Guide to the American Economy Edmund A. Mennis Thomas L. Friedman, The Lexus and the Olive Tree Robert D. Shriner (PDF 111K) Public File Order these books at the NABE Bookstore |
