3,910 research outputs found
Upon Daedalian Wings of Paper Money: Adam Smith and the Crisis of 1772
No full textAdam Smith advocated laissez faire for most sectors of the economy, but he believed that banking and finance required several forms of regulation including usury laws and the prohibition of small-denomination bank notes. Smith’s support for banking regulation appears to have been a response to the shocks that hit the Scottish banking system during the time that he was composing the Wealth of Nations. The most important was the Crisis of 1772, which has been described as the first modern banking crisis faced by the Bank of England. It resembles the Crisis of 2008 in a number of striking ways. This paper describes the Crisis of 1772, the other shocks that hit the Scottish banking system, and the evolution of Smith’s views on the regulation of banking. It is based on Smith’s writings, the secondary sources, and a quantification of the new issues of Scottish bank notes during Smith’s era.
Legal regulation of prices in Tanzania : an examination of the Regulation of Prices Act 1973 as a tool of social change and development
No full textDrawing mainly from the Tazanian experience this study
attempts to review the principal issues in the legal regulation of
prices, by identifying both the general and specific importance
of law in this respect. The position I shall present is that
legal control is both necessary and desirable for the welfare
and social development of the people. The key issue is whether
the market-place will perform its function satisfactory: Will
it produce socially desirable results? If it will not, why will
it not? And will legal regulation help to do the job a little
better?
In an attempt to answer some of these questions,
first of all, outline the basic issues raised by the study in
the first Chapter. Then I examine the general case for price
controls - the theory about the controls, the motives and reasons
for their imposition and the manner in which they are effected
in different economic systems. This is done in Chapter Two. Relying
most on the available literature on the regulatory process, this
Chapter also looks at the relationship between law and economic
regulation and concludes that the effectiveness of law depends
on the existence of a conducive socio-economic environment. In
Chapter Three I describe the past record of price control laws
in Tanzania. I conclude that despite the failure in the past,
the controls still constitute an important policy instrument
in the transition to socialism. In Chapters Four and Five I describe
the manner in which the current regulations are implemented and
the problems encountered. I conclude that the operational performance
of the controls is constrained by internal and external influences on the economic and political life of the country. In the concluding
Chapter I assess the impact of the controls: Do the controls
work? Do people buy goods at the controlled prices? Why today
the controls are almost popularly accepted as worthwhile? I conclude
that while there may be no measurable economic gains derived
by consumers, the controls have a stabilising effect on the social
and political front. In the final section I argue that the
future success of the legislation depends on creating a correspondence
between the economic structures and the control system. What
makes the controls ineffective is not so much defects in the
law but the contradictions between the orientation of and functioning
of the economic system and the ideological commitment
The classical notion of competition revisited
No full textWe compare and analyse two different conceptions of market competition: the walrasian notion of perfect competition and the Classical notion of free competition: while the former may be described as an equilibrium state in which atomistic agents treat prices parametrically, the latter is a situation in which agents, endowed by market power, fix prices strategically. We show that price undercutting or outbidding are the typical phenomena that, for the Classical authors, may be observed in a market characterized by free competition. We investigate some problematic aspects of the neoclassical notion of perfect competition and we reconstruct the Classical theory of free competition, as developed, in particular, by Adam Smith and Karl Marx, in the light of the modern notion of mixed strategies equilibria.Classical Economics, Competition, Adam Smith, Karl Marx, mixed strategies
House Price Booms and the Current Account
No full textA simple open economy asset pricing model can account for the house price and current account dynamics in the G7 over the years 2001-2008. The model features rational households, but assumes that households entertain subjective beliefs about price behavior and update these using Bayes' rule. The resulting beliefs dynamics considerably propagate economic shocks and crucially contribute to replicating the empirical evidence. Belief dynamics can temporarily delink house prices from fundamentals, so that low interest rates can fuel a house price boom. House price booms, however, are not necessarily synchronized across countries and the model correctly predicts the heterogeneous response of house prices across the G7, following the fall in real interest rates at the beginning of the millennium. The response to interest rates depends sensitively on agents' beliefs at the time of the interest rate reduction, which are a function of the prior history of disturbances hitting the economy. According to the model, the US house price boom could have been largely avoided, if real interest rates had decreased by less after the year 2000.interest rates, house prices, short-term capital movements
THE USE OF MEAN-VARIANCE FOR COMMODITY FUTURES AND OPTIONS HEDGING DECISIONS
No full textThis study provides additional evidence of the usefulness of mean-variance procedures in the presence of options which can truncate and skew the returns distribution. Using a simulation analysis, price hedging decisions are examined for hog producers when options are available. Mean-variance results are contrasted with optimal decisions based on negative exponential and Cox-Rubinstein utility functions over 56 ending price scenarios and two levels of risk aversion. The findings from our simulation, which considers discrete contracts, basis risk, lognormality in prices, transactions costs, and alternative utility specifications, affirm the usefulness of mean-variance framework.Marketing,
Cross hedging under multiplicative basis risk
No full textCross hedging price risk in an incomplete financial market creates basis risk. We propose a new way of modeling basis risk where price risk and basis risk are combined in a multiplicative way. Under this specification, positive prudence is a necessary and sufficient condition for underhedging in an unbiased market. Using the example of cross hedging jet fuel price risk with crude oil futures, we show that the new specification is superior in describing the price series and that optimal cross hedges differ significantly from those derived under the traditional additive cross hedging model. (C) 2011 Elsevier B.V. All rights reserved
Stock Market Volatility and Learning
No full textWe study a standard consumption based asset pricing model with rationally investing agents but allow agents' prior beliefs about price and dividend behavior to deviate slightly from rational expectations priors. Learning about stock price behavior then causes the model to become quantitatively consistent with a range of basic asset prizing 'puzzles': stock returns display momentum and mean reversion, asset prices become volatile, the price-dividend ratio displays persistence, long-horizon returns become predictable and a risk premium emerges. Comparing the moments of the model with those in the data using confidence bands from the method of simulated moments, we show that our findings are robust to different assumptions on the system of beliefs and other model features. We depart from previous studies of asset prices under learning in that agents form expectations about future stock prices using past price observations.asset pricing, learning, near-rational price forecasts
Implications of Oil Price Shocks for Monetary Policy in Ghana: A Vector Error Correction Model
No full textWe estimate a Vector Error Correction Model to explore the long run and short run linkages between the world crude oil price and economic activity in Ghana for the period 1970:1 to 2006:4. The results point out that there is a long run relationship between the variables under consideration. We find that an unexpected oil price increase is followed by an increase in price level and a decline in output in Ghana. We argue that monetary policy has in the past been with the intention of lessening negative growth consequences of oil price shocks, at the cost of higher inflation.Oil price shock, cointegration, vector error correction, impulse response
Unfolding the Allegory behind Market Communication and Social Error and Correction
No full textOne aspect of the present paper is to draw out the Adam Smith in Friedrich Hayek. I suggest that common economic talk of market communication, market error and correction, and policy error and correction invokes a spectatorial being and appeals to our sympathy with such being. Behind such common economic talk, I suggest, are implicit allegories wherein an allegorical figure runs a system of superior knowledge, communication, and voluntary cooperation. Theoretical discussions of social error invoke the notion of agent error applied to the allegorical being. Similarly, theoretical talk of social correction invokes the notion of agent correction applied to the allegorical being. The allegory behind such talk is vital and necessary because without it the talk of social or market communication, error, and correction cannot be sustained. Unfolding the allegory clarifies the meaning, limitations, and value of such talk. Making what had been implicit explicit helps economists to avoid overstating their generalizations or making those generalizations sound more precise and accurate than they are. Meanwhile, scholars have pointed out that spectating impartially involves something of a paradox – distant-closeness, or cool-warmth. Concurring, I explore the connections between the features of the allegorical being and the doings of the economic agents. I suggest that the cogency of such theorizing depends on such correspondences, and that they are matters of culture, of both the context within which the theorizing is done and of the context theorized about.Market communication; price system; error; correction; coordination; Adam Smith; Friedrich Hayek; impartial spectator; invisible hand
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