New Economics Papers
on Business, Economic and Financial History
Issue of 2005‒02‒13
seventeen papers chosen by

  1. Measuring Market Integration: Foreign Exchange Arbitrage and the Gold Standard 1874-1913 By Canjels, Eugene; Prakash-Canjels, Gauri; Taylor, Alan M
  2. Oil and the Macroeconomy Since the 1970s By Barsky, Robert; Kilian, Lutz
  3. The Purchasing Power Parity Debate By Taylor, Mark P; Taylor, Alan M
  4. Labour Productivity in the US and the UK During the 19th Century By Broadberry, Stephen N; Irwin, Douglas
  5. Explaining Anglo-German Productivity Differences in Services Since 1870 By Broadberry, Stephen N
  6. The Theory of the Firm and Its Critics: A Stocktaking and Assessment By Nicolai J. Foss; Peter G. Klein
  7. Wealth Concentration in a Developing Economy: Paris and France, 1807-1994 By Piketty, Thomas; Postel-Vinay, Gilles; Rosenthal, Jean Laurent
  8. Anatomy of the Rise and Fall of a Price-Fixing Conspiracy: Auctions at Sotheby's and Christie's By Ashenfelter, Orley C; Graddy, Kathryn
  9. A Variance Ratio Related Prediction Tool with Application to the NYSE Index 1825-2002 By Kandel, Shmuel; Zilca, Shlomo
  10. Top Indian Incomes, 1922-2000 By Banerjee, Abhijit; Piketty, Thomas
  11. Intermittent Employment: Work Histories of Israeli Men and Women, 1983-1995 By Neuman, Shoshana; Ziderman, Adrian
  12. Citizenship Laws and International Migration in Historical Perspective By Bertocchi, Graziella; Strozzi, Chiara
  13. Growth, History and Institutions By Bertocchi, Graziella
  14. Real Business Cycle Models of the Great Depression : a Critical Survey By Luca, PENSIEROSO
  15. The Changing Institutions of Governance in Corporate France:What Drives the Process? By Peter Wirtz;
  16. The German Public Pension System: How it Was, How it Will Be By Axel H. Börsch-Supan; Christina B. Wilke
  17. Keynes and the Birth of Modern Macroeconomics By David Laidler

  1. By: Canjels, Eugene; Prakash-Canjels, Gauri; Taylor, Alan M
    Abstract: A major question in the literature on the classical gold standard concerns the efficiency of international arbitrage. Authors have examined efficiency by looking at the spread of the gold points, gold point violations, the flow of gold, or by tests of various asset market criteria, including speculative efficiency and interest arbitrage. These studies have suffered from many limitations, both methodological and empirical. We offer a new methodology for measuring market integration based on nonlinear theoretical models and threshold autoregressions. We also compile a new, high-frequency series of continuous daily data from 1879 to 1913. We can derive reasonable econometric estimates of the implied gold points and price dynamics. The changes in these measures over time provide an insight into the evolution of market integration.
    Keywords: dollar; gold points; market integration; sterling
    JEL: F30 N10
    Date: 2004–08
  2. By: Barsky, Robert; Kilian, Lutz
    Abstract: Increases in oil prices have been held responsible for recessions, periods of excessive inflation, reduced productivity and lower economic growth. In this Paper, we review the arguments supporting such views. First, we highlight some of the conceptual difficulties in assigning a central role to oil price shocks in explaining macroeconomic fluctuations, and we trace how the arguments of proponents of the oil view have evolved in response to these difficulties. Second, we challenge the notion that at least the major oil price movements can be viewed as exogenous with respect to the US macroeconomy. We examine critically the evidence that has led many economists to ascribe a central role to exogenous political events in modelling the oil market, and we provide arguments in favour of ‘reverse causality’ from macroeconomic variables to oil prices. Third, although none of the more recent oil price shocks has been associated with stagflation in the US economy, a major reason for the continued popularity of the oil shock hypothesis has been the perception that only oil price shocks are able to explain the US stagflation of the 1970s. We show that this is not the case.
    Keywords: oil shock; OPEC; recession; stagflation
    JEL: E31 E32
    Date: 2004–07
  3. By: Taylor, Mark P; Taylor, Alan M
    Abstract: Originally propounded by the 16th-century scholars of the University of Salamanca, the concept of purchasing power parity (PPP) was revived in the interwar period in the context of the debate concerning the appropriate level at which to re-establish international exchange rate parities. Broadly accepted as a long-run equilibrium condition in the post-war period, it first was advocated as a short-run equilibrium by many international economists in the first few years following the breakdown of the Bretton Woods system in the early 1970s and then increasingly came under attack on both theoretical and empirical grounds from the late 1970s to the mid 1990s. Accordingly, over the last three decades, a large literature has built up that examines how much the data deviated from theory, and the fruits of this research have provided a deeper understanding of how well PPP applies in both the short run and the long run. Since the mid 1990s, larger datasets and nonlinear econometric methods, in particular, have improved estimation. As deviations narrowed between real exchange rates and PPP, so did the gap narrow between theory and data, and some degree of confidence in long-run PPP began to emerge again. In this respect, the idea of long-run PPP now enjoys perhaps its strongest support in more than 30 years, a distinct reversion in economic thought.
    Keywords: exchange rates; long-run equilibrium; nonlinearity; purchasing power parity; real exchange rates
    JEL: F31 F41
    Date: 2004–07
  4. By: Broadberry, Stephen N; Irwin, Douglas
    Abstract: A number of writers have recently questioned whether labour productivity or per capita incomes were ever higher in the United Kingdom than in the United States. We show that although the United States already had a substantial labour productivity lead in industry as early as 1840, especially in manufacturing, labour productivity was broadly equal in the two countries in agriculture, while the United Kingdom was ahead in services. Hence aggregate labour productivity was higher in the United Kingdom, particularly since the United States had a larger share of the labour force in low value-added agriculture. US overtaking occurred decisively only during the 1890s, as labour productivity pulled ahead in services and the share of agricultural employment declined substantially. The share of the population in the labour force was lower in the United States, so that the United Kingdom’s labour productivity advantage in the mid-nineteenth century translated into a larger per capita income lead.
    Keywords: international comparison; labour productivity; per capita income; sectoral disaggregation
    JEL: N10 N30 O47 O57
    Date: 2004–09
  5. By: Broadberry, Stephen N
    Abstract: Germany overtook Britain in comparative productivity levels for the whole economy primarily as a result of trends in services rather than trends in industry. Britain’s productivity lead in services before World War II reflected external economies of scale in a highly urbanised economy with an international orientation. Low productivity in Germany reflected the under-development of services in an economy that was slow to move out of agriculture. As German agricultural employment contracted sharply from the 1950s, catching-up occurred in services. This was aided by a sharp increase in human and physical capital accumulation, underpinned by the institutional framework of the postwar settlement.
    Keywords: Britain; Germany; productivity; services
    JEL: N10 N30 O40 O52
    Date: 2004–09
  6. By: Nicolai J. Foss; Peter G. Klein
    Abstract: Ever since its emergence in the 1970s the modern economic or Coasian theory of the firm has been discussed and challenged by sociologists, heterodox economists, management scholars, and other critics. This paper reviews and assesses these critiques, focusing on behavioral issues (bounded rationality and motivation), process (including path dependence and the selection argument), entrepreneurship, and the challenge from knowledge-based theories of the firm.
    Keywords: Coasian theory of the firm; Bounded rationality; Motivation; Entrepreneurship
    JEL: B4 D23 L14 L22
    Date: 2005
  7. By: Piketty, Thomas; Postel-Vinay, Gilles; Rosenthal, Jean Laurent
    Abstract: We use large samples of estate tax returns to construct new series on wealth concentration in Paris and France from 1807 to 1994. Wealth concentration in Paris and in France increased until World War I and then fell abruptly. The rise in inequality prior to WWI accelerated (rather than stabilized) during the 1860-1913 period. This was largely driven by the growth of large industrial and financial estates and coincided with the decline of aristocratic fortunes (until 1857, the share of aristocrats and real estate in top estates was actually rising). The decline in wealth concentration that followed World War I appears to have been prompted by the 1914-1945 shocks rather than by a two-sector, Kuznets-type process. Inequality fell both in Paris and in the rest of France. Finally, the very high levels of wealth concentration observed on the eve of World War I were associated with individuals who lived off capital income rather than active entrepreneurs. In particular, the age profile of wealth looks markedly different around 1900-1913 than in other periods. At that time top wealth holders were in their 70s and 80s, whereas they had been in their 50s at the beginning of the nineteenth century and would be so again at the end of the twentieth century. These results shed new light on the ongoing debate about wealth inequality and growth in the presence of capital constraints.
    Keywords: income distribution
    JEL: J12
    Date: 2004–09
  8. By: Ashenfelter, Orley C; Graddy, Kathryn
    Abstract: The Sotheby’s/Christie’s price-fixing scandal that ended in the public trial of Alfred Taubman provides a unique window on a number of key economic and antitrust policy issues related to the use of the auction system. The trial provided detailed evidence as to how the price fixing worked, and the economic conditions under which it was started and began to fall apart. The outcome of the case also provides evidence on the novel auction process used to choose the lead counsel for the civil settlement. Finally, though buyers received the bulk of the damages, a straightforward application of the economic theory of auctions shows that it is unlikely that successful buyers as a group were injured.
    Keywords: auctions; cartels; commissions; price-fixing
    JEL: D44 K21 L41
    Date: 2004–10
  9. By: Kandel, Shmuel; Zilca, Shlomo
    Abstract: Cochrane’s variance ratio is a leading tool for detection of deviations from random walks in financial asset prices. This Paper develops a variance ratio related regression model that can be used for prediction. We suggest a comprehensive framework for our model, including model identification, model estimation and selection, bias correction, model diagnostic check, and an inference procedure. We use our model to study and model mean reversion in the NYSE index in the period 1825-2002. We demonstrate that in addition to mean reversion, our model can generate other characteristic properties of financial asset prices, such as short-term persistence and volatility clustering of unconditional returns.
    Keywords: mean reversion; persistence; variance ratio
    Date: 2004–11
  10. By: Banerjee, Abhijit; Piketty, Thomas
    Abstract: This Paper presents data on the evolution of top incomes and wages from 1922 to 2000 in India using individual tax returns data. Our data shows that the shares of the top 0.01%, the top 0.1% and the top 1% in total income shrank substantially from the 1950s until the early-to-mid 1980s but then went back up again, so that today these shares are only slightly below what they were in the 1920s-1930s. We argue that this U-shaped pattern is broadly consistent with the evolution of economic policy in India: The period from the 1950s to the early-to-mid 1980s was also the period of ‘socialist’ policies in India, while the subsequent period, starting with the rise of Rajiv Gandhi, saw a gradual shift towards more pro-business policies. Although the initial share of this group was small, the fact that the rich were getting richer had a non-trivial impact on the overall income distribution. In particular, its impact is not large enough to fully explain the gap observed during the 1990s between average consumption growth in survey-based NSS data and the National accounts based NAS data, but is sufficiently large to explain a non-negligible part of it (between 20% and 40%).
    Keywords: income distribution
    JEL: J12
    Date: 2004–09
  11. By: Neuman, Shoshana; Ziderman, Adrian
    Abstract: This study examines the extent, duration and timing of employment breaks amongst a large representative sample of Jewish workers in Israel over the 13-year time period, 1983-95. Work histories are constructed from a new joint database, unique in Israel, which was derived from a linkage of 1995 Population Census data with monthly employment records of the National Insurance Institute. The Paper focuses on gender differences in work history patterns and, within each gender, breakdowns are provided by ethnic origin, marital status, age and education level. While most of the results are both expected and compatible with current economic theories of household behaviour, some of the findings of the study are less expected, particularly those relating to the considerable amount of intermittent employment found amongst Israeli male workers. Also, women’s labour market attachment is stronger than is generally presumed. Gender differences in employment interruptions are greater for younger than older workers.
    Keywords: age; education; employment; ethnicity; gender; marital status; non-employment; spells
    JEL: J12 J15 J16 J21 J22
    Date: 2004–10
  12. By: Bertocchi, Graziella; Strozzi, Chiara
    Abstract: We investigate the origin, impact and evolution of citizenship laws. Citizenship laws originate from the common and civil law traditions, which apply jus soli and jus sanguinis, respectively. We compile a dataset across countries of the world starting from the 19th century. The impact of the original, exogenously-given laws on international migration proves insignificant for the early, mass migration waves, which confirm to be driven primarily by economic incentives. Postwar convergence of citizenship laws is determined by legal tradition and international migration, but also by border stability, the establishment of democracy, the welfare burden, cultural factors and colonial history.
    Keywords: borders; citizenship laws; democracy; international migration; legal origins
    JEL: F22 K40 N30 O15
    Date: 2004–11
  13. By: Bertocchi, Graziella
    Abstract: We illustrate the ongoing research line on Growth, History, and Institutions, which adds to economic growth analysis a historical and an institutional dimension, both at the theoretical and the empirical level. We present applications of this research strategy to the impact of colonization on growth, the extension of the franchise and the welfare state, the evolution of educational systems, the relationship between industrialization and democratization, and international migration. We propose a new standard, starting from 1870, as the future reference period for theoretical and empirical research on growth. We conclude with policy implications of the Growth, History, and Institutions research line.
    Keywords: growth; history; institutions
    JEL: H00 N00 O00
    Date: 2004–11
  14. By: Luca, PENSIEROSO (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES))
    Abstract: Recent years have witnessed a revival of interest in the Great Depression of the 1930s. Among the differing new interpretations, that of the real business cycle (RBC) is particularly significant. It represents an outstanding methodological innovation in trying to cast the Great Depression within an “equilibrium” framework. This paper critically reiews the RBC interpretation of the Great Depression, clarifying its theoretical and methodological foundations, and paving the way for future assessments of its validity.
    Keywords: Great Depression; Real Business Cycle Theory
    JEL: B22 N12
    Date: 2005–02–09
  15. By: Peter Wirtz (Université de Lyon 2);
    Abstract: Since the middle of the nineteen-eighties, the French system of corporate governance has undergone some major transformations. Originally, it was dominated by the State’s important weight in the structures constraining managerial discretion in some of France’s largest firms. But, the public administration has increasingly retired from its active role in corporate governance matters. This paper addresses the question of a theoretical explanation of the observed phenomenon of the dynamics of governance. The conceptual framework we propose is to a great extent based on the economic theory of institutional change. It strongly emphasizes the role of so-called ‘organizational entrepreneurs’, who lead the initiative aiming at a transformation of existing structures. In this context, a country’s shared mental pattern is, however, supposed to be a force enhancing path dependence. Theoretical propositions are deduced and applied to the case of the French corporate governance system. The analysis of the latter’s evolution yields some encouraging results, indicating that the proposed theory seems globally consistent with empirical facts.
    Keywords: Corporate Governance;Financial Policy;Institutional Change;Mental Patterns.
    JEL: G30
    Date: 2004–07
  16. By: Axel H. Börsch-Supan (Mannheim Research Institute for the Economics of Aging); Christina B. Wilke (National Bureau of Economic Research)
    Abstract: Germany still has a very generous public pay-as-you-go pension system. It is characterized by early effective retirement ages and very high effective replacement rates. Most workers receive virtually all of their retirement income from this public retirement insurance. Costs are almost 12% of GDP, more than 2.5 times as much as the U.S. Social Security System. The pressures exerted by population aging on this monolithic system, amplified by negative incentive effects, have induced a reform process that began in 1992 and is still ongoing. This paper has two parts. Part A describes the German pension system as it has shaped the labor market from 1972 until today. Part B describes the reform process, which will convert the exemplary and monolithic Bismarckian public insurance system to a complex multi-pillar system. We provide a survey of the main features of the future German retirement system introduced by the so called “Riester Reform” in 2001 and an assessment in how far this last reform step will solve the pressing problems of the German system of old age provision.
    Date: 2003–03
  17. By: David Laidler (University of Western Ontario)
    Abstract: The usual description of Keynes's macroeconomics as relying on the postulate of money wage stickiness to explain unemployment, and advocating fiscal policy as its cure, is largely mythical. Rather he was concerned with exploring the theoretical idea that an economy co- ordinated by monetary exchange is prone to market failures that create unemployment. The origins of this idea in what Keynes called "classical" economics can be traced back at least as far as John Stuart Mill, though he himself preferred to claim the much less orthodox Malthus as his antecedent. Be that as it may, Keynes's own emphasis on income and employment variations as both the result of and the "solution" to specifically inter-temporal failures was highly original. The idea that monetary exchange might involve co-ordinatioin failures of any sort has now largely disappeared from macroeconomics, under the influence of New-classical economics.
    Keywords: macroeconomics; Keynesian economics; markets; money; interest rates; unemployment; multiplier
    JEL: B12 B22 B31
    Date: 2005

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