New Economics Papers
on Business, Economic and Financial History
Issue of 2010‒05‒15
fourteen papers chosen by

  1. Reading the recent monetary history of the U.S., 1959-2007 By Jesus Fernández-Villaverde; Pablo Guerrón-Quintana; Juan F. Rubio-Ramírez.
  2. The Economic Impact of the Little Ice Age By Morgan Kelly; Cormac Ó Gráda
  3. The Economic Origins of Twentieth Century Decolonisation in West Africa By J.A. Agbor
  4. Marx, Globalization, and the Falling Rate of Profit: A Critical Study. By Miguel D. Ramirez
  5. Is Decentralization "Glue" or "Solvent" for National Unity? By Richard M. Bird; François Vaillancourt; Édison Roy-César
  7. Harvard, the Chicago Tradition and the Quantity Theory: A Reply to James Ahiakpor By David Laidler; Roger Sandilands
  8. Terms of trade of agricultural and food products, 1951‐2000 By Raúl Serrano; Vicente Pinilla
  9. The historical relationship between inflation and political rebellion, and what it might teach us about neoliberalism By Cohen, Joseph N; Linton, April
  10. Vacillations around a Pension Reform Trajectory: time for a change? By Platon Tinios
  11. Bank liability insurance schemes before 1865 By Warren E. Weber
  12. Financial market shocks during the Great Depression By Alycia Chin; Missaka Warusawitharana
  13. A Theory of Colonial Governance By J.A. Agbor; J. W. Fedderke; N. Viegi
  14. Fair value accounting: villain or innocent victim?: exploring the links between fair value accounting, bank regulatory capital, and the recent financial crisis By Sanders Shaffer

  1. By: Jesus Fernández-Villaverde; Pablo Guerrón-Quintana; Juan F. Rubio-Ramírez.
    Abstract: The authors report the results of the estimation of a rich dynamic stochastic general equilibrium model of the U.S. economy with both stochastic volatility and parameter drifting in the Taylor rule. They use the results of this estimation to examine the recent monetary history of the U.S. and to interpret, through this lens, the sources of the rise and fall of the great American inflation from the late 1960s to the early 1980s and of the great moderation of business cycle fluctuations between 1984 and 2007.
    Keywords: Economic conditions - United States ; Business cycles - Econometric models ; Econometric models ; Monetary policy - United States
    Date: 2010
  2. By: Morgan Kelly (University College Dublin); Cormac Ó Gráda (University College Dublin)
    Abstract: We investigate by how much the Little Ice Age reduced the harvests on which pre-industrial Europeans relied for survival. We find that weather strongly affected crop yields, but can find little evidence that western Europe experienced long swings or structural breaks in climate. Instead, annual summer temperature reconstructions between the fourteenth and twentieth centuries behave as almost independent draws from a distribution with a constant mean but time varying volatility; while winter temperatures behave similarly until the late nineteenth century when they rise markedly, consistent with anthropogenic global warming. Our results suggest that the existing consensus about a Little Ice Age in western Europe stems from a Slutsky effect, where the standard climatological practice of smoothing data prior to analysis induces spurious cyclicality in uncorrelated data.
    Date: 2010–04–19
  3. By: J.A. Agbor
    Abstract: This paper argues that the pattern of decolonisation in West Africa was a function of the nature of human capital transfers from the colonisers to the indigenous elites of the former colonies. Underpinning the nature of these human capital transfers is the colonial educational ideology. Where this ideology emphasized the notion of "assimilation", the system generally tended to produce elites that depended highly on the coloniser for their livelihood, hence necessitating a continuation of the imperial relationship even after independence was granted. On the contrary, where the ideology emphasized the "strengthening of the solid elements" of the country-side, the system tended to produce a bunch of elites that were quite independent of the coloniser and consequently had little to lose from a disruption of the imperial relationship at independence. The model raises several predictions based on a single assumption on the nature of the nationalist elite. The paper's contribution, is in providing a framework for understanding the different paths of decolonisation in Africa in general, but more specifically in the British and French West African empires, an approach which unites both the Eurocentric and Afrocentric perspectives.
    Keywords: Decolonisation, Human Capital Transfers, Eurocentrism, Afrocentrism, West Africa
    JEL: I21
    Date: 2010
  4. By: Miguel D. Ramirez (Department of Economics, Trinity College)
    Abstract: This paper argues that Marx’s views on globalization and its supposed inevitability underwent a substantial evolution and revision after the publication of the Communist Manifesto. His writings relating to India, and particularly China and Russia, show that he was no longer certain that “the country that is more developed industrially only shows, to the less developed, the image of its own future” (Vol. I, p. 13). In the case of China, a prime example of the Asiatic mode of production, Marx even doubted whether globalization (capitalism) would ever be able to accomplish its historical mission of developing the forces of production and creating the material conditions for a higher mode of production, viz., Communism. While in the Russian case, he seriously entertained the notion that it could bypass the hardships and vicissitudes of capitalism and forge its own unique path to socialism. If accepted, this interpretation represents a serious challenge to the universality and validity of Marx’s materialist conception of history. The paper also addresses the role of the law of the tendency of the falling rate of profit in the geographic expansion of competitive capitalism. It contends that Marx did not believe there was an iron-clad connection between the falling rate of profit and globalization; in addition, it argues that Marx believed that the capitalists’ insatiable search for colonial markets was driven by their desire to overcome recurrent (and growing) realization problems in the home market arising from deficient aggregate demand on the part of both workers and capitalists.
    Keywords: Asiatic Mode of Production, Globalization, Law of the Falling Tendency of the Rate of Profit, Materialist Conception of History, Underconsumptionist Tendencies.
    JEL: B10 E24
    Date: 2010–05
  5. By: Richard M. Bird (International Studies Program. Andrew Young School of Policy Studies, Georgia State University); François Vaillancourt (Economics department, Université de Montréal); Édison Roy-César
    Abstract: The last two centuries have seen the rise of the nation-state as the dominant political institution around the world. During this period, the colonial empires of varying duration and reach created first by the Portuguese, Spanish, and Dutch, then the French and British, then the Germans and Italians, and finally the Russians and Americans crumbled and were replaced by independent nation-states. However, “state” and “nation” are not always equivalent. In a surprising number of countries, as we discuss later in this paper, autonomist and secessionist movements of varying strength and character remain active. The broad question we consider in this paper is whether decentralization is likely to hurt or help national unity in these “countries at risk.”
    Keywords: Decentralization, National Unity, Spain, Germany
    Date: 2010–02–01
  6. By: Thomas Hazlett (School of Law, George Mason University); David Porter (Economic Science Institute, CHapman University); Vernon L. Smith (Economic Science Institute, Chapman University)
    Abstract: In the Federal Communications Commission, Ronald Coase exposed deep foundations via normative argument buttressed by astute historical observation. The government controlled scarce frequencies, issuing sharply limited use rights. Spillovers were said to be otherwise endemic. Coase saw that Government limited conflicts by restricting uses; property owners perform an analogous function via the “price system.” The government solution was inefficient unless the net benefits of the alternative property regime were lower. Coase augured that the price system would outperform. His spectrum auction proposal was mocked by communications policy experts, opposed by industry interests, and ridiculed by policy makers. Hence, it took until July 25, 1994 for FCC license sales to commence. Today, some 73 U.S. auctions have been held, 27,484 licenses sold, and $52.6 billion paid. The reform is a textbook example of economic policy success. We examine Coase’s seminal 1959 paper on two levels. First, we note the importance of its analytical symmetry, comparing administrative to market mechanisms under the assumption of positive transaction costs. This fundamental insight has had enormous influence within the economics profession, yet is often lost in current analyses. This analytical insight had its beginning in his acclaimed early article on the firm,6 and continued into his subsequent treatment of social cost. Second, we investigate why spectrum policies have stopped well short of the property rights regime that Coase advocated, considering rent-seeking dynamics and the emergence of new theories challenging Coase’s property framework. One conclusion is easily rendered: competitive bidding is now the default tool in wireless license awards. By rule of thumb, about $17 billion in U.S. welfare losses have been averted. Not bad for the first 50 years of this, or any, Article appearing in Volume II of the Journal of Law & Economics.
    Date: 2009–11
  7. By: David Laidler (University of Western Ontario); Roger Sandilands (University of Strathclyde)
    Abstract: James Ahiakpor's critique of our 2002 work on the relationship between a certain 1932 Harvard Memorandum on anti-depression policies and the 1932 Harris Foundation Manifesto dealing with the same issues misses the significance of these documents, and of the relationships between them, both for the literature of the time, and for later debates about the origins of 1930s Chicago ideas about monetary economics. He is correct to locate these documents in a more general quantity theoretic tradition, but his discussion here is marred by a serious misunderstanding of the so-called forced saving doctrine and its place in that tradition. Finally, Ahiakpor fails to appreciate that the absence of positive policy proposals from the 1934 Harvard studies of The Economics of the Recovery Program, a point which he himself notes, is a major contributing factor to that book's mediocrity.
    Keywords: Chicago tradition; Quantity theory; Forced saving; Depression
    JEL: B12 B22 E52
    Date: 2010
  8. By: Raúl Serrano (Department of Business Administration, Facutad de Ciencias Económicas y Empresariales, Universidad de Zaragoza); Vicente Pinilla (Department of Applied Economics, Facutad de Ciencias Económicas y Empresariales, Universidad de Zaragoza)
    Abstract: This paper focuses on analysing the evolution of the terms of trade of products in the agricultural and food trade in the second half of 20th century. We have compiled 56 new price indices for internationally‐traded agricultural products. Furthermore, in order to obtain real prices, the agricultural price series have been deflated by an international trade price index that includes major changes in the prices of not only manufactured goods, but also other commodities, such as energy products, which have had so much influence on the shocks occurring in the period. Another feature of this work is the use of a new time series method. We shall analyse the presence of two structural breaks in non‐stationary series, as well as establishing the years of structural break endogenously. Our aim is to characterise the distinct trends of the groups of products by determining which groups experienced the greatest decline, and the possible causes, both economic and institutional
    Keywords: Singer‐Prebish Hypothesis, terms of trade, agricultural and food trade, agricultural prices
    JEL: F14 N50 N70 Q17
    Date: 2010–04
  9. By: Cohen, Joseph N; Linton, April
    Abstract: Chronic inflation is argued to be politically destabilizing. We examine data on inflation and political instability that goes as far back as 500 years. Although the behavior of both prices and political rebellion have changed over these five centuries, and enduring relationship between price and political destabilization appears in our analyses. This relationship may provide insight into the context from which neoliberalism emerged, potential reasons for its failure, and some of the key dilemmas upon which the post-2008 global economic order may hinge
    Keywords: inflation; political instability; long-run history;
    JEL: E31 N2 N4
    Date: 2010–02
  10. By: Platon Tinios
    Abstract: Discussion of pensions in Greece displays a paradox: reform is universally acknowledged to be important, urgent and mature, yet the political class avoid and postpone all discussion. This results in a syncopated reform path. A historical overview indicates that reforms are best understood as interrupted and unsuccessful attempts to complete the original blueprint for the pension system which was formulated in the 1930s. These define a reform trajectory around which there exist centrifugal forces pulling away (cross-subsidies), and homeostatic mechanisms bringing back on track (public finance). Thus, the original 1930s design is implicitly accepted as a maximal aim of reform, while the question of its appropriateness is never raised. This analysis explains reform failures by problems in the content and preparation of reforms, rather than on the strength of opposition (which, in any case, was highly predictable). A fresh start, provided there is adequate preparation, is a possible way out of the impasse.
    Keywords: Greece; History of the welfare state; Social Security; Pension reforms.
    Date: 2010–04
  11. By: Warren E. Weber
    Abstract: Prior to the Civil War several states established bank liability insurance schemes of two basic types. One was an insurance fund, in which member banks paid into a state-run fund that would pay losses of bank creditors. The other was a mutual guarantee system, in which survivor banks were legally responsible the liabilities of any bank that became insolvent. Both schemes did well at insuring bank creditors, but neither prevented bank panics. Bank failure rates were somewhat higher for banks that were part of these schemes. The experience with these schemes shows that regulatory incentives matter for controlling moral hazard. The schemes that provided the most control of moral hazard were those that had a high degree of mutuality of losses borne by all banks participating in the scheme.
    Keywords: Deposit insurance ; Moral hazard ; Bank notes
    Date: 2010
  12. By: Alycia Chin; Missaka Warusawitharana
    Abstract: This study examines the effect of shocks observed in financial markets on output and employment during the Great Depression. We present three main findings. First, an adverse financial shock leads to a decline in the manufacturing sector's output and employment that peaks about 11 months afterward. Next, this shock has a much greater impact on the durables sector than the nondurables sector. Last, continuing financial market weakness in 1933 and 1934 may have restrained the recovery from the Great Depression. The findings suggest that financial market weakness contributed to the length and depth of the Great Depression, and that this occurred mainly through the investment channel. In addition, we use the estimates from the Great Depression data to evaluate the effect of recent financial market disruptions.
    Date: 2010
  13. By: J.A. Agbor; J. W. Fedderke; N. Viegi
    Abstract: This paper considers conditions of optimality in a co-optive strategy of colonial rule. It proposes a simple model of elite formation emanating from a coloniser's quest to maximise extracted rents from its colonies. The results suggest multiple optimal solutions, depending on the specification of the production function, the governance technology chosen by the coloniser and the technological parameters of the model. For instance, in agrarian colonial societies, the results suggest that under a technology of governance by numbers, a large elite population is a direct reflection of a high productivity-enhancing technology by the coloniser. In contrast, under a governance technology by quality, the better the productivity-enhancing technology, the lower the quality of human capital that is transferred to the elite. Additionally, under a composite governance technology, and given non-linearity conditions defined by the productivity distance threshold, the better the productivity-enhancing technology, the smaller the optimal elite size that is chosen by the coloniser. An alternative set of results is obtained assuming an industrial economic set-up (or interdependent production). These results suggest that the long debate about the apparent superiority of one European colonisation experience over the other is much more intricate than is often perceived in the literature. The insight from the model is also useful in understanding why the stock of human capital available in countries emerging from colonisation varied considerably across colonial experiences and from one country to another.
    Keywords: Optimality Conditions, Governance technology, human capital, elite, productivity
    JEL: F54 I20 N47
    Date: 2010
  14. By: Sanders Shaffer
    Abstract: There is a popular belief that the confluence of bank capital rules and fair value accounting helped trigger the recent financial crisis. The claim is that questionable valuations of long term investments based on prices obtained from illiquid markets created a pro-cyclical effect whereby mark to market adjustments reduced regulatory capital forcing banks to sell off investments which further depressed prices. This ultimately led to bank instability and the credit effects that reached a peak late in 2008. This paper analyzes a sample of large banks to attempt to measure the strength of the link between fair value accounting, regulatory capital rules, pro-cyclicality and financial contagion. The focus is on large banks because they value a significant portion of their balance sheets using fair value. They also hold investment portfolios that contain illiquid assets in large enough volumes to possibly affect the market in a pro-cyclical fashion. The analysis is based on a review of recent historical financial data. The analysis does not reveal a clear link for most banks in the sample, but rather suggests that there may have been other more significant factors putting stress on bank regulatory capital.
    Keywords: Global financial crisis ; Bank capital ; Banks and banking - Accounting
    Date: 2010

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